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China indicators spark JPM A share fund

Its time to consider investing in Chinas A share market, according to JP Morgan Asset Management, which last week unveiled its actively-managed Renminbi Qualified Foreign Institutional Investor [RQFII] equity fund.

Although China’s GDP, industrial production and retail sales have been generally declining since 2010, these indicators appear to be stabilizing, bank research showed.

Better than expected Q2 GDP growth (7.5%), progress on reform of the financial system and with state-owned enterprises and a low 7.8x price-to-earnings ratio on the CSI 300 could be leading to a re-rating of the China market, the firm said.

The JPMorgan China A-Share Opportunities Fund intends to capture opportunities in the technology, healthcare, and consumption-driven sectors.

“The A-share [market] is a much bigger universe than Hong Kong-listed Chinese stocks and the sector breakdown of the two markets are also very different,” Ancus Mak, vice president of retail distribution, told Fund Selector Asia.

“We can find many unique opportunities in A-shares. For example, technology [surveillance product manufacturers], traditional Chinese medicine and tourism plays.”

Furthermore, Mak believes large-cap stocks are more interesting, although the fund has the flexibility to invest in small- and mid-caps as well.

The fund launched on 18 August and he said it’s receiving a positive response from the market, with some banks and independent financial advisers indicating their interest.

JPMorgan claims the vehicle is the first actively-managed fund in Hong Kong and is unlike other RQFII products, which typically tend to invest in fixed income or are passively managed.

In terms of portfolio allocation, the new RQFII fund seeks to invest at least 70% of the assets in China A shares and up to 10% to People’s Republic of China-issued equity funds (including ETFs) that invest in A-shares. 

Benchmarked against the CSI 300 Net Index, the scheme will levy an initial charge of 5% and management fees of 1.75% following the special offer period.

Lilian Leung, fund manager of JPMorgan China A-Share Opportunities Fund, believes further liberalization of China’s A-share market will gradually change the investor profile. 

Noting that retail investors account for about 80% of the market turnover with a focus on small-and mid-cap shares, she said: “Some good quality big cap names might be undervalued and greater participation from foreign and institutional investors, who might focus more on longer-term investment horizons, could support a potential re-rating of the market.”

“We are positive on the outlook and well positioned for a cyclical recovery with exposure to property, high beta mid-sized banks and diversified financial companies,” the portfolio manager added.

Product Differentiation

The asset manager also runs two other funds that invest in A-shares, though they invest through the QFII route: JPMorgan China Pioneer A-Share and JPMorgan China New Generation.

Speaking on the product differentiation, Mak said, “JPMorgan China Pioneer A-Share and [the newly-launched] JPMorgan China A-Share Opportunities are very similar, but the new fund intends to have limited exposure to non A-shares and also has more flexibility to invest in mid and small caps.”

JPMorgan China New Generation has fixed income exposure (roughly 5-10%) and excludes energy, materials, industrials and utilities in the equity benchmark, so this fund is more tilted towards financials and consumption, Mak said.

Part of the Mark Allen Group.