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Asia’s fund selectors keep faith in China equities

Sentiment has turned positive towards several asset classes despite continuing reasons for caution, according to Last Word Media research.

“There are strong opinions among pan-Asian investors on the asset classes worth buying [over the next 12-months],” write the authors of a recent report.

China equities saw a 60% increase in positive sentiment among fund selectors in Hong Kong, Singapore and Thailand in the third quarter of this year, and an almost 50% shift in net sentiment. In contrast, demand for developed market stock markets declined, including the US, as did support for local equity markets.

Source: Last Word Media Research

Fund selectors’ preference for China equities builds on the 20% increase in positive sentiment reported in the second quarter, despite the continuing failure to resolve the Sino-US trade dispute.

Low valuations relative to (Hong Kong-listed) H-shares, recent inclusion into major benchmark indices and the domestic consumption focus of many of the CSI 300 component companies (which makes them less vulnerable to the US-China trade dispute) have proved compelling reasons for international investors to raise their exposure to A-shares.

The MSCI China index is up 11.35% year-to-date (22 October) in US dollar terms, and the CSI 300 index of A-shares has performed even better, rising 28.04% and outstripping the MSCI AC World index (18.57%), according to FE Analytics data.

However, in terms of sentiment and performance momentum, the China equity market is an outlier among conventional asset classes. A lack of clear macroeconomic direction is forcing fund selectors to seek returns from strategies that promise to conjure returns from exotic formulas and special expertise — or else, opt for a cautious, steady approach.

Absolute return, private equity, multi-asset and unconstrained bond fund strategies attracted more supporters in the third quarter, increasing the popularity they garnered earlier this year.

On the other hand, passive index funds have enjoyed an upward shift in demand, while developed market government and investment grade corporate bonds retain their appeal – which has been reflected in the spate of fixed maturity products launched this year.

Cash is also high up the net sentiment chart, with many fund selectors expecting to increase their positions over the next 12-moths, “which points to general apprehension,” according to the report.

CSI 300 and MSCI China indices versus MSCI World index

Source: FE Analytics (Year-to-date returns in US dollars)

Part of the Mark Allen Group.