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Two asset managers expand China A-shares coverage

Two asset managers expand China A-shares coverage

The China’s A-shares MSCI inclusion will mark a positive catalyst for Chinese equities and help advance President Xi Jinping’s ambitions to make the renminbi a global currency.

It will also help improve global interest in China’s A-share markets and encourage inflows into China.

Ultimately, everyone will be looking to ramp up research for onshore Chinese companies, Caroline Yu Maurer, head of Greater China Equities at BNP Paribas Asset Management, told Citywire Asia.

Since the start of this year, BNP Paribas has added two analysts to its Greater China equities investment team. Including Yu, the firm now has a total of seven people across Hong Kong and China covering both onshore and offshore listed Chinese companies.

Aberdeen Standard Investments, meanwhile, is also expanding its A shares coverage, as part of regular business activity in accordance with the size of the investment universe, rather than because of MSCI inclusion of China A-shares.

The company's China equities team is part of its 50-member Asia Pacific equities team.

Nicholas Yeo, head of China equities at Aberdeen Standard told Citywire Asia: ‘We have been scoping the A-share market for more than a decade now, visiting firms and meeting company managers regularly.’

Nothing has changed when it comes to investing in mainland Chinese companies, he said.

It still involves understanding the nuts and bolts of a business to assess its quality and fundamentals, doing due diligence on management and paying careful heed to valuations to ensure investors pay a reasonably fair price, he added. 

Just like in other markets, Aberdeen Standard invests in companies that have good corporate governance, balance sheet strength, an easily defendable competitive advantage and respect for minority shareholders in China.

It has had exposure to mainland companies via H-shares for many years, but the manager only added its A-shares exposure more recently and have been raising its exposure within its regional portfolios gradually.

‘The investable A-share universe – that is, quality companies we trust in – remains limited for now. Of a notional onshore universe of around 3,500 stocks, we invest in about 30 – those we believe will be winners in the long term,' Yeo said.

The 30 A-share companies that Aberdeen has invested have established a strong foothold in their industries and taken steps to adopt international management practices.

'This may seem slim pickings, but if China continues to commit to stock and capital market liberalisation, investors are unlikely to be kept waiting too long for quality to grow and more investable companies to surface,' Yeo added.

The weighting of A-shares will gradually go up as investors comfort with the market grows in line with broad-scale improvements in accessibility and liquidity.

However, it might be years before A-shares have a material impact on global equity allocations, he said.

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