Investors with a keen eye on the Chinese market have been spooked by the Chinese government’s sudden clampdown on tech and private education firms.
Estimates indicate that over US$1 trillion ($1.36 trillion) have been wiped out from the market ever since the announcements were made close to a month ago.
Going forward, market watchers fear that Beijing may come down hard on several other industries too in the coming months.
Gian Plebani, portfolio manager at UBS Asset Management cautions that the clampdown is not a general one on private companies.
“It is very important to understand that these are targeted individual attempts to level the playing field in certain industries,” he explains at The Edge Singapore’s Fund Watch webcast that aired on Aug 10.
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The way Plebani sees it, the government’s move looks to create long-term stability in the economy and fairness for society.
For instance, the clampdown on the tutoring industry, acts as a social policy to reduce the financial strain that parents have been taking on.
Meanwhile, the clampdown on the companies providing internet consumer discretionary services acts to “level the playing field and avoid future market monopoly,” he notes.
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With China facing an ageing population, strong urbanisation, and movement into technology, Plebani sees opportunities in areas such as “hard and soft infrastructure”.
These sectors are likely to generate attractive returns in the medium to longer-term, he points out.
In fact, he already sees that the offshore market has been dominated by large tech companies such as those providing consumer discretionary services.
“They have performed very very well over the last year, so investors could really generate very attractive returns,” says Plebani.
However, he cautions that high returns comes with a challenge: high volatility.
To circumvent this, Plebani suggests having an active investment approach where one can balance out risks in the market.
What this means is that, investors can, for instance, have a stronger appetite for risk off assets like bonds or cash, especially when markets are seemingly bleak.
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While investors’ holdings of onshore china equities and fixed income has been robust between Jan 2016 and Jan 2021, data indicates that many are still under-invested in China.
Investments in China make up 17.7% of the share of global GDP, lower than the 24.8% for investments in the United States.
Similarly, Chinese investments’ share of global equity index stands at 5.2%, compared to 57.3% for the US.
Plebani points out that both the offshore and onshore markets allow investors to capture opportunities and create a diversified portfolio.
The onshore equity markets, offers opportunities in sectors such as traditional Chinese medicine, home appliances and domestic liquor.
The offshore equity markets, conversely, are more focused on conventional sectors such as financial services, healthcare/health-tech and e-commerce.
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“The Chinese investment universe can be [diverse],” starts Plebani, adding that asset classes range from US dollar denominated bonds to A-shares, B-shares and Hong Kong stocks.
His suggestion to investors who are keen on reaping benefits from the Chinese market, is to look for a professionally managed multi-asset product for China, as is offered by UBS.
When asked for three benefits of such a strategy, Plebani pointed out: one-stop access to opportunities in China, having a less volatile way to benefit from China’s growth and having an easier way to tap on the smart money flows into China.
“Really, the mix is what makes your portfolio very stable and basically efficient over time and that's how we allocate between the different markets and to really access all of them,” he quips.
Fund Watch is a webcast series run by The Edge Singapore. Each episode explores a different fund and strategy to seek alpha for investors.
For more on UBS Asset Management views on China multi-asset, go to https://www.ubs.com/ca/en/asset-management/insights/china/china-multi-asset-investing.html
