China A shares can help diversify your global equity risk - Tough Questions On China

The A share market also gives investors a chance to be part of changing consumer taste. As personal incomes grow, Chinese are upgrading their preferences for higher-end brands.

China A shares - stocks listed in Shanghai and Shenzhen exchanges, offer global investors a vast array of opportunities in China's fast growing "new economy" sectors like healthcare, consumer and IT. The suite of over 3,000 companies listed ranges from traditional Chinese medicine firms, pharmaceutical outfits with cancer drugs, local home appliance brands and liquor (baijiu) companies.

China upgrades: top-end brands grow much faster than mass-market ones

The world's second largest stock market is too large to ignore, and the recent correction could present an opportunity to put (more) money to work now.

Here are three reasons why.

1. China A shares are less affected by global economic troubles and can diversify some equity risk

China has a large domestic economy of about 1.4 billion whose wealth continues to grow rapidly. In the last ten years, GDP per capita has doubled. So local Chinese companies do not have to venture outside its shores for growth. In fact, most Chinese companies get less than 10%1 of their sales internationally and are not too affected by the US-China trade tensions in the recent years.

Just over half of China's A shares are traded by local investors and with international investors not as involved (yet) in the scene, the A share market is less influenced by world news.

These factors put together means that adding China A shares can help diversify some of the global equity risk as they are not too correlated to their international peers.

2. Foreign investors are starting to focus on China A shares and inflows have increased significantly

For now, foreign investors hold roughly only 3%2 of China's local stock market. However, this is rapidly changing as inflows grow. Over the last one year (ending September 2020), investors from outside China increased their holdings by more than 50 % and now own about US$139 billion worth of Chinese shares3.

This focus is driven in part by China's economic growth - despite the pandemic - and in part by investors' confidence in how the Chinese government has liberalized the local stock market over the years.

This has led international index providers to add China A shares into its emerging market indices. MSCI first started the process in 2018 with a small portion of mainland stocks. Other benchmark providers like FTSE and S&P have also shadowed the move.

Large flows have followed these moves because investors benchmarked to the indices would need to allocate part of their portfolio to China A market.

Over time, as these benchmark providers increase the share of China A stocks in their global benchmarks, the flows into the market will continue strongly. Investors who participate early can ride along the wave of these inflows.

3. China's growth is back on track

Despite the lockdown in early 2020, China was the only major country that saw its economy grow in 2020. China is expected to continue rebounding with 8% GDP increase in 2021 compared to 5.5% growth for the world economy4.

Seize the China A opportunity with Affin Hwang World Series - China A Opportunity Fund
While the case for China A may be compelling, investors need to differentiate the ways of getting exposure to this market.

Given the vast number of stocks available, shrewd investors would want to be active in this market and focus on a smaller set of quality companies. This way, the chances of generating alpha (outperformance over benchmarks) is higher.

The Affin Hwang World Series - China A Opportunity Fund (Fund) is one such actively managed strategy. This Fund is invested into the UBS (Lux) Investment Sicav - China A Opportunity Fund, a high-conviction portfolio of about 20 stocks (vs 600 stocks in the market). The confidence of the manager, Bin Shi in his stock picks can be seen in the proportion that top ten holdings make up - over 65% of the portfolio.

Bin Shi was named "Best Fund Manager" by Citywire Asia in Singapore for 2018, 2019 and 2020 and is based in Hong Kong5.

Investors who are keen to learn more about the Affin Hwang World Series - China A Opportunity Fund can contact us at 1800 88 7080 or visit https://aham.com.my and invest through any of Affin Hwang AM sales offices.

Investors are advised to read and understand the contents of the Fund's Product Highlights Sheet, Information Memorandum dated 8 January 2019 before investing.

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WARNING STATEMENT
A copy of the Prospectus and Product Highlights Sheet ("PHS") can be obtained at Affin Hwang Asset Management Berhad's sales offices or at www.affinhwangam.com. Investors are advised to read and understand the contents of Affin Hwang Aiiman Global Multi Thematic Fund’s (or the “Fund”) Prospectus dated 12th August 2021 and corresponding PHS before investing. There are fees and charges involved when investing in the Fund. Investors are advised to consider and compare the fees and charges as well as the risks carefully before investing. Investors should make their own assessment of the risks involved in investing and should seek professional advice, where necessary. The price of units and distribution payable, if any, may go down as well as up and the past performance of the Fund should not be taken as indicative of its future performance. The Securities Commission Malaysia has not reviewed this marketing/promotional material and takes no responsibilities for the contents of this marketing/promotional material and expressly disclaims all liability, however arising from this marketing/promotional material.