The two sectors have been strong performers due to various reasons. In the financial sector, banks have benefitted from a loosening monetary policy, which is expected to continue this year.
The People’s Bank of China has cut both interest rate and banks’ cash reserve requirement ratio three times each since November to combat an economic slowdown.
HSBC Global Asset Management recently said it likes the financial sector and sees selective opportunities in Chinese banks because of their cheap valuations.
“The monetary easing moves in China has resulted in a number of managers turning more positive toward cyclical, highly-geared interest-rate sensitive sectors such as financials and industrials, ” according to Wing Chan, director of manager research at Morningstar Investment Management Asia
“Given the strong performance of industrial and financial sectors over the past year, it is not a surprise to see that funds with overweight positions in these sectors tended to outperform during this time.
For managers that are under our coverage, we have certainly seen an improved outlook on financials, especially within the non-bank financials of insurance and brokerage firms,” Chan said.
In the industrial sector, which is made up of mainly state-owned enterprises, government-driven reforms have lifted investor expectations.
HSBC Global AM and JP Morgan Asset Management recently said deep reforms to revive the struggling sector are resulting in bottom-up opportunities for active managers.
A number of portfolios reviewed by Morninstar also revealed managers are trying to explore opportunities emerging from the SOE reforms theme, Chan said.
“These can often be widely spread across a number of key sectors such as industrials, financials, energy.”
Key China indices are up by about 100% over a one-year period to 5 June. The MSCI China A and the Shanghai Stock Exchange Composite index have surged nearly 155% and 146%, respectively, during the period under review.
Despite today’s disappointing decision by MSCI, other events are expected to drive China’s markets this year. The mutual recognition of funds between China and Hong Kong will launch on 1 July and the Shenzhen-Hong Kong Stock Connect is expected to start in the coming months.
The rally has been mainly driven by retail investors, which a growing number of fund houses see as a red flag. Sentiment is running so high that several managers including BlackRock, Schroders and Morgan Stanley Investment Management have recently cautioned on overheating.
Top five funds with more than 100% return
BNP Paribas Investment Partner’s two funds — BNP Paribas Flexi Equity Small Caps China A and BNP Paribas Flexifund Equity China A — secured top slots with 223.5% and 192.8% returns, respectively.
Funds registered for sale in Singapore and/or Hong Kong with at least a three-year track record were considered for the list, which is based on FE data.
BNP Paribas Flexi Equity Small Caps China A
The Luxembourg-domiciled vehicle was launched in February 2007 and had €11.3m ($12.8m) in assets under management on 30 April. The fund portfolio was not available.
Alex Wai Shing Ko has been managing the fund since August 2010. The fund managed to beat its benchmark, the CSI 500, which rallied 190.8% over the last year.
BNP Paribas Flexifund Equity China A
The Luxembourg-based vehicle has been operating since 2004 and had €68.1m in assets under management on 30 April. Alex Wai Shing Ko has also been managing this fund since 2011.
In terms of sector orientation, financial, healthcare and industrial companies made up more than 60% of the fund’s assets. The fund is overweight healthcare companies while it is underweight financial and industrial companies.
Its other overweight positions are in materials, consumer discretionary and consumer staple companies. The fund does not have any exposure to the technology sector, which has nearly an 8% weighting in the MSCI China A Net Return Index, its benchmark index.
Largest stock holdings are in China Merchants Property Developers, China Vanke and Shenzen Accord Pharmaceutical Company.
Allianz China A-Shares
The fund has been in inception since March 2009 and had $42m in AUM on 30 April.
Anthony Wong has been managing the fund since January 2014, while Sunny Chung joined as deputy manager last month.
The fund is overweight on financial, industrial and consumer discretionary companies, which account for about 76% of the fund’s assets. Materials and technology companies are the next favoured bets, though the fund is underweight both sectors.
Shanghai Pudong Development Bank, Poly Real Estate Group and Ping An Insurance Group were the top stocks.
Manulife China A Segregated Portfolio
The Cayman Islands-based fund was launched in September 2010 and had $165.4m in assets on 30 April.
The financial sector had a 41.4% weighting in the fund’s portfolio, followed by industrial and consumer discretionary companies, which had 15.7% and 13.5% weightings, respectively.
Citic Securities, Ping An Insurance Group and China State Construction Engineering Corp were the biggest holdings.
HSBC China Dragon
The Hong Kong-domiciled fund has been operating since July 2007 and had HK$2.8bn in AUM. Mandy Chan has been managing the fund since 2010.
The fund does not have a specific benchmark index.
The fund does not provide a sector break-up of the portfolio. But the top 10 holdings show banks and financial services companies dominate the portfolio.
The top two holdings include financial companies such as Citic Securities, and Haitong Securities. China Railway Construction, a construction and materials company, is the fund’s third largest holding.
Other financial companies in the top 10 include names such as, Shanghai Pudong Development Bank, China Pacific Insurance, China Everbright Bank, Industrial and Commercial Bank of China, Huatai Securities and Ping An Bank.
