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Barings upbeat on A-shares in 2020

Despite headwinds, the firm believes its first China onshore fund will enter a benign market environment in 2020.
Shelley Liu, Barings

Last month, Barings launched its first private fund management (PFM) product, the China A-share Private Securities Investment Fund No 1.

The firm declined to summarise the sectors or strategy, and would only say generically the aim is to invest in “A-shares”.

In 2019, A-shares have been buoyant, despite China’s slowing GDP growth, a prolonged trade dispute with the US and serious social unrest in Hong Kong. The CSI 300 Index, which measures A-shares, is up 27.5% year-to-date.

However, the market has largely been driven by the inclusion of A-shares on global indices, which has resulted in mandatory A-share buying by products that follow the relevant indices.

Shanghai-based Shelley Liu, Barings’ country head of China, told FSA that the firm nonetheless remains confident in the A-share market next year.

“Looking ahead to 2020, China’s economy is expected to stabilize as long as the real estate industry is stable, and the slowdown in global demand does not surprise on the downside,” Liu said.

“Against this backdrop and given the ample liquidity of the market, we are optimistic about the equity market for next year, especially as the Chinese regulator is approving more IPOs of high quality companies related to technology and economic transformation, which will help the stock market attract more investors.”

Talking about the ongoing trade war, Liu would only say that “it actually has little impact on us”.

However, she said if a slowdown in China’s GDP growth weakens investor appetite and return expectations are taken down, the firm is more likely to face challenges in distributing its onshore fund.

2020 plans

In October, Barings announced its new office in Shanghai. The office has 13 people, but she declined to reveal how many of them are in the investment side.

The firm now manages one PFM product and two qualified domestic limited partnership (QDLP) products, according to Asset Management Association of China (Amac).

A QDLP licence allows foreign managers to raise money domestically to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate, within allocated quotas.

Barings has used up its QDLP quota, but has applied for more quota and is waiting approval, Liu said.

She added that her firm would monitor the performance of its first onshore fund and based on that, could introduce more PFM products.

Offshore players

Offshore fund houses have been launching onshore funds via the PFM licence, but have been reluctant to discuss details, citing the mainland’s regulatory rules.

According to Amac data, Hong Kong-based Value Partners now leads the pack, with four onshore products introduced this year and eight since the wholly foreign-owned enterprise (WFOE) registered as a PFM firm in November 2017.

UBS Asset Management has eight PFM products, followed by Winton Investment Management, the WFOE of British quant fund manager Winton Capital, which now runs seven onshore products.

As for UK-based Schroders, in October, the firm registered the second fund of funds onshore, the China Diversified Income No. 1 FOF Private Security Investment Fund, FSA previously reported.

In June, Chinese regulators said they planned to allow foreign managers holding a PFM licence to convert their businesses into a public fund management company (FMC), which would permit them to distribute to the RMB 13.9trn ($2trn) retail investor base.

Part of the Bonhill Group.