china-opps-equity
Capabilities

China Equity

Is now the time for a dedicated allocation to China?

It is the time to consider whether reliance on emerging market exposure through indices is sufficient to meet your investment goals and expectations. China’s growth and influence on global markets demands a more considered and deliberate exposure to China, including a direct component.

Global investors are under exposed to China

China is on track to overtake the US as the largest economy in the world within the next seven years. It already boasts the second-largest equity and bond markets globally, with an array of both well-established industry leaders and up-and-coming innovators.

Global investors remain under exposed to China, and with the opportunity set as expansive as the country itself, it’s crucial for international investors to gain the most effective exposure.

China’s GDP as a share of global economy has been growing consistently
Investors are still under exposed in terms of country allocations

Accessing Chinese equity markets

There is no doubt that China presents significant opportunities for investors. The key question is how to access these opportunities from outside of China. The inclusion of Chinese equities and bonds into key global indices provides important impetus for investors to think strategically (versus opportunistically) about their exposure to China.

Understanding China’s multiple share types

China equity markets are split into many different share types, which can be grouped into onshore-listed (mainland China) and offshore-listed (Hong Kong and US) shares. Access for foreign investors to China A shares has been improving following significant regulatory changes. In fact, China recently lifted restrictions entirely for the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) schemes, integrating both programs into one effective November 2020. 

An all-shares approach

An "all shares" approach combines both onshore and offshore equities, and offers the broadest opportunity set and diversification for investing in China.

The investment universe spans large and mid-cap companies across China A-shares, B-shares, H-shares, Red-chips, P-chips, and foreign listings (ADRs).

Transition to a new economy

The Chinese government has shown commitment to facilitate the economy’s transition from investment to consumption, and from manufacturing to services. Estimated 65% of households in China will be middle-income class by 2027 - underpinning the economic transition to a consumption driven economy*. (World Economic Forum, Future of Consumption in Fast-Growth Consumer Markets: China, 2018)
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Benefits of broad Chinese equities investing

The Chinese equities are still subject to high volatility, but regardless of which active approach (fundamental or quantitative) investors choose, buying into companies that possess solid long-term prospects and can deliver earnings growth at an attractive valuation level may help investors capture strong alpha in the China market.

Our goal is to take advantage of market inefficiencies through a bottom-up fundamental analysis.

A-shares opportunities

A-Shares offer unique exposure to the China domestic economy with over 4,200 public listed companies, many of which are global leaders in their respective fields.

Systematic risk premium and alpha opportunities remain abundant and the China A-shares market has the lowest correlation with other global equity markets.

The asset class that cannot be ignored

The Chinese A-share market constitutes the second largest equity market in the world, after the US. It has a market capitalisation of US$11.8 trillion* (*as at 30 April 2021). However, despite being the world’s second largest, China’s market is still small relative to the size of its economy. With the central government increasing its pace of financial market reforms, we believe the A-share market is set to grow rapidly.
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Comprehensive China A-shares platform

We are particularly focused on A-shares, as we believe they may present the opportunity for foreign investors. This is due to recent changes in regulation aimed at increasing foreign investor activity in China’s financial markets.

A-shares are the conduit for embracing the development of the domestic Chinese economy; a more consumption orientated model to service a 1.4+ billion population.

Quantitative strategies

Quantitiative strategies systematically apply evidence-based research to help achieve outcomes.

Systematic investing works in China

Various classic factors may work in China but will require careful adjustments to adapt to its unique market landscape. Value investing have performed relatively better as the market experienced a gradual institutionalization. Low volatility adjusted for size and beta also showed a positive return over the long term.
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Harness Systematic Factor Premium

Evidenced by academic research and proven by practitioners, many systematic investing ideas drive returns in the China A share markets. Our quantitative equity team conduct both research and portfolio management duties as an integrated team driving our quanititiatve analysis.

Long-term secular trends in China

The Chinese economy has undergone a dramatic structural transformation in the last five years, shifting from growth via infrastructure spending to present-day, where consumption, services and the “new economy” sectors, such as technology, healthcare and green economy, are the main contributors of the economy. 

Technology

Technology

Chinese technology, ecommerce and internet companies continue to innovate and grow. Hardware manufacturers of 5G technology can also bring value to the supply chain.

Healthcare

Healthcare

Rising demand from China's aging 1.4 billion population. Healthcare is the second largest A-share sector in China with over US$1 trillion in total market capitalization, almost 400 investable stocks and diverse subsectors ranging from biotech to medical devices.

Green economy

Green economy

Sectors like electric vehicles and renewable energy will likely benefit as China moves towards carbon neutrality. China is the largest EV user market in the world and maker of lithium-ion batteries. (Source: Forbes. Why China Is Dominating Lithium-Ion Battery Production, 2019)

Investing in China with Invesco

At Invesco, we provide trusted China outcomes with a seamless global experience.

Deep China expertise meets global best practice

In collaboration with Invesco Great Wall (IGW) - our joint venture and a 1st Sino- American fund management company, Invesco is able to bring unique local insight combining with global practices to our global clients.

Invesco helps IGW build capabilities in active equities, quant equities, fixed income and multi-asset solutions and IGW works closely with Invesco to develop client-centricity, robust risk management and strong compliance practices.

(Invesco Great Wall is a 49% Invesco-owned joint venture.)

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.