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HSBC Global AM cautious of A-share volatility

While the China A-share market is up nearly 30% this year, the market also fell 30% last year.
Sanjiv Duggal, HSBC Global Asset Management

While China A-shares provide long-term opportunities, investors should be aware of how volatile the market could be, according to Sanjiv Duggal, head of Asian and Indian equities at HSBC Global Asset Management.

“This year, the China A-share market is up about 28%, but last year it fell about 30%. So it means that whatever you gained this year is making up for the downturn last year,” he said during a recent media briefing in Hong Kong.

“If markets go up too fast or fall too fast, we tend to get a bit worried.”

Other fund managers have cautioned about the volatility of China A-shares. T Rowe Price, for example, explained that the majority of the stock market is driven by retail investors, which explains why there are frequent swings in the market.

Even regulators have acknowledged the need to make the A-share market more stable. This year, for example, Chinese regulators have been encouraging domestic asset managers to launch more equity products, especially index mutual funds and ETFs, with the aim of institutionalising — bringing more stability — to the domestic stock market.

That said, HSBC Global AM’s Duggal believes that there are “rationally valued” stocks in the A-share market, but did not elaborate.

“We closely look at valuations and there are some great stocks in the A-share market, which we hold,” he said.

The firm’s Asia ex Japan Equity Fund, which Duggal manages, has China (which includes onshore and offshore China equities) as its largest geographical exposure, with 34.5% of its assets invested in the market, according to the fund factsheet. However, Duggal did not provide exact figures on how much he is invested in the A-share market.

The HSBC Asia ex Japan Equity Fund – geographic allocation

Source: Fund factsheet.

He noted that he does not differentiate between A-shares and H-shares when picking stocks, as the stock’s valuations, together with its business model, are more important when evaluating securities.

“It doesn’t matter where these companies are listed as we try to find the best companies,” he said.

Other firms have also been positive over A-shares, including UBS Asset Management, Allianz Global Investors, DWS and Value Partners.

The HSBC GIF Asia ex Japan Equity Fund versus its benchmark index and sector in Hong Kong

Source: FE Fundinfo. In US dollars, trailing three years.

Part of the Mark Allen Group.