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AB manager sticks with Chinese equities

'Beaten up' China and Korea equities account for 2/3 of Stuart Rae's portfolio.
Stuart Rae, Alliance Bernstein

Rae, who is Alliance Bernstein’s Hong Kong-based chief investment officer for Asia-Pacific value equities, has remained overweight in Chinese equities since the beginning of this year.

“We’ve been overweight China in our portfolio. We saw a bigger opportunity in the asset class given the sell-off at the end of last year. We felt that the sell-off was overdone given the fundamentals at the time, so that gave us the confidence to stick with those investments,” he said at a recent Hong Kong media briefing.

Rae co-manages the AB Asia ex-Japan equity portfolio, which has a 46.1% allocation to China, which compares to the 36.86% allocation in its benchmark index, the MSCI AC Asia ex-Japan, according to the fund factsheet.

Rae acknowledged investors’ concerns over US-China trade war and the global growth slowdown. However, he believes that there are some areas in China that are insulated from trade war concerns, such as consumption- and infrastructure-related stocks.

“There was a slowdown in consumption at the end of last year, but that has recovered and is running 9% year-on-year, which is very healthy.

“Infrastructure is also supported by the stimulus in China. For example, the market for heavy equipment is very strong today,” he said.

China preference

Other investment professionals have also become positive on the asset class this year. A number of Asia-based fund selectors, for example, have indicated that they prefer China equities over other equity markets in the next 12 months, according to Last Word Media’s most recent “Future Flows” survey.

Bill Maldonado, chief investment officer at HSBC Global Asset Management, also believes that China will continue to perform positively this year. Other investment professionals, such as Rob Mumford at Gam Investments and SSGA’s Kevin Anderson have also taken a positive stance on the asset class.

On the other hand, Deutsche Wealth Asset Management has become cautious about Chinese equities as industrial profits and business sentiment have started to wane. The manager of UBS Asset Management’s China-focused multi-asset product has also become neutral the asset class until he sees some improvement in the US-China trade war and stronger economic growth.

Besides China, AB Rae’s also like other areas of the market that are “beaten up”, such as Korea equities, which accounts for 28.16% of his portfolio, and information technology.

AB Asia ex-Japan Equity Portfolio’s allocations and top holdings

Source: Fund factsheet

Top 10 holdings

Source: Fund factsheet

Overall, AB’s Rae is positive in Asia equities as he expects earnings growth to remain resilient moving forward.

“Earnings are soft, but they are not negative,” he said. “If you look at earnings expectations for this year, we are still in positive territory. And in fact, Asia looks relatively strong compared to the rest of the world moving forward.”

Source: Alliance Bernstein


The AB Asia ex-Japan Equity Portfolio versus its benchmark

Source: FE Analytics. In US dollars.

Part of the Mark Allen Group.