Ride the wave of smart money into China - 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.

Last year, China was the only major country to grow as private companies restarted operations and consumers resumed spending after the lockdown.

China is expected to continue rebounding - with 8+ GDP increase in 2021 compared to 5.5% growth for the world economy.

China's strong recovery has not gone unnoticed by investors

China's finesse in navigating the pandemic has not gone unnoticed by global investors. Strong investor confidence has, in part, been reflected by a flood of inflows to its domestic onshore stock and bond markets.

Foreign investors pumped in RMB 1.4 trillion (USD 217 billion) in the period from January 2020 to the end of September 2020, up more than 60% compared to the same period in 20192.

"These flows do not just reflect China's economic strength. Investors are also comforted by the progress China has made in opening up its domestic financial markets,'' says Gian Plebani, portfolio manager at UBS Asset Management. He explained that access to mainland stocks and bonds used to be restricted to institutional investors who also had to apply for investment quotas. Repatriating investment gains out of China was also not easy.

However, China has taken various steps to simplify access to its local markets. It opened up its Shanghai stock market to foreign investors with the Shanghai - Hong Kong Stock Connect in 2014. Over the last seven years, China has also eased the doorway to its Shenzhen stock market and local bond markets through similar connect platforms. Along the way, it has addressed some other investors' concerns and simplified many of its investment rules.

"The fact that global index firms now have China A shares and RMB bonds in their indices show how much Chinese financial markets have matured in terms of stability and accessibility," says Gian.

And this is a "two-way, win-win situation" for both China and foreign investors. China benefits from the capital injection that can be used to further prop up growth while those who include China assets can diversify their portfolios further. "Given that foreign money is still a very small fraction of China's vast markets, its equities and bonds are not too correlated with global markets. For global investors, allocating to onshore assets improves diversification in a global portfolio and helps to maximise risk adjusted returns,'' explains Gian.

The wall of money into China will continue

He gives two reasons. Firstly, global indices are continuing to include Chinese financial assets in their global indices. As a higher proportion of China assets are mixed in, investors who are benchmarked to the various indices will have to adjust their allocations upwards.

Secondly, there is a mis-match of Chinese assets in global portfolios compared to its contribution to global growth. China accounts for around 18% of global GDP but only has a 5.2% share of the global equities market. The US share of global GDP is 25% and has a heavy 57% representation in global stock markets4. As China's stature on the world stage continues growing, we expect investors will also increase their share of assets to China.

Affin Hwang World Series - China Allocation Opportunity Fund can help investors Gain access to onshore China markets

The Affin Hwang World Series - China Allocation Opportunity Fund ("Fund") is a multi-asset solution that provides easy access to the full spectrum of China assets - equities and bonds, regardless of whether they are mainland or offshore-listed. The Fund is a locally wrapped version of the award-winning UBS (Lux) Key Selection SICAV - China Allocation Opportunity (USD). It won the Platinum award in the Fund Selector Asia Awards in Singapore twice in row - for 2020 and 2021.

Gian who manages the underlying Fund takes a flexible approach in how he puts money to work. "Investment markets are constantly changing and so we cannot be static in how we allocate money. Take 2020 for example.

While we gradually brought down our total allocation to China equities from around March, the proportion of China A shares grew in the portfolio. We saw strong policy support which boosted local investor sentiment and A-share market performance,'' says Gian.

China multi-asset investing may still be a fairly new concept but in time to come could gain popularity. This approach allows investors to participate in China's growth story with less of the ups and downs common to pure equity strategies.

Above all, the severe under-representation in investors' portfolios to a country that will prop up global growth for years to come and contribute up to 30% of the world's fortune in the next decade, may seem foolhardy.

Investors who are keen to learn more about the Affin Hwang World Series - China Allocation 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 18 January 2019 and its First Supplemental Information Memorandum dated 28 August 2019 before investing.

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