China multi-asset investing - FAQs

China multi asset investing - what is it and how does it benefit investors. Find out in our FAQs here

25. Aug. 2020

China multi-asset strategies invest in a mix of Chinese equities, bonds and cash assets.

China multi-asset funds benefit investors by combining the best of China's equity and bond markets into one allocation.

Actively-managed China multi-asset funds can benefit investors by moving flexibly as market conditions change, as well as managing exposure to onshore and offshore markets, and managing exchange rate risk to the RMB.

Watch Gian Plebani, Portfolio Manager, explain the benefits of China multi-asset investing here

If you want China's growth and are comfortable with high volatility, then pure China equity funds could be the right solution for you.

Alternatively, if you want less volatility and the attractive yields available from Chinese bonds, a China fixed income strategy might suit. 

But if you want to take the best from both worlds and look for a smoother ride, it could be time to consider a China multi-asset strategy.

China multi asset strategies invest in a mixture of equities and bonds, while a pure China equity strategy fund will invest solely in China equities.

China onshore refers to assets traded in mainland China, such as on the Shenzhen and Shanghai stock exchanges, China offshore refers to Chinese assets traded in Hong Kong and the US.

China A-shares are RMB-denominated equity shares of China-based companies and trade on either the Shanghai Stock Exchange (SSE) or Shenzhen Stock Exchange (SZSE). H-shares are HKD-denominated equity shares of mainland China companies listed on the Hong Kong Stock Exchange.

In the case of China, index inclusion is the process of bringing onshore listed China stocks and bonds into global benchmark indexes, such as the MSCI All Cap World Index and the Bloomberg Barclays Global Aggregate.

There are many benefits but the index inclusion process principally benefits the China A-share market because it makes them more prominent factor in global asset allocation portfolios, boosts liquidity for A-shares, and offers long-term structural support for the asset class.

China A-share markets in Shanghai and Shenzhen are dominated by retail investors, who account for an estimated 80% of market turnover. 

That means China's A-share space is quite different to other more developed markets, such as the US and UK, where larger, institutional investors are most dominant and who are, generally speaking, more fundamentally driven and who have longer term time horizons. 

Compared to institutional investors, retail investors in China's A-share markets tend to have shorter holding periods, so they trade in and out of positions more frequently. This can explain why China A-shares have much higher levels of volatility than other markets around the world.

Onshore China fixed income, and particularly government and policy bank bonds, can function as a safe haven asset which brings important diversification benefits since the asset class is negatively correlated to Chinese equity and Chinese credit and has low correlation to overseas bond markets.

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