The Shenzhen-Hong Kong Stock Connect, launched in December 2016, is the second leg of a Chinese Connect Scheme. The program began in 2014 with the Shanghai-Hong Kong Stock Connect and offers foreigners seeking to invest in mainland Chinese equities the only direct alternative to A-share quotas. Due to existing market inefficiencies as evidenced in the high stock return dispersion of the Chinese equity market, we consider that Chinese equities are favorable for long-term stock pickers. In our view, market capitalisation weighted indices (i.e., passive investment) remain strongly exposed to the “Old China” and fail to fairly reflect the considerable prospects arising from the rapid shift of the economy towards consumption and services.
Based on our two-decade long research and portfolio management presence in Hong Kong, we have been progressively seizing Chinese stock picking opportunities for our clients. Today, this places us in a position contrary to the majority of the active emerging markets fund management industry, which is still significantly underweight China. Despite the headlines that the country generates, Chinese stocks have been the dominant driver of both absolute and relative performance in our Global Emerging Markets and Asia ex Japan regional strategies in recent years. In addition, our Comgest Greater China portfolio has been fertile ground for new idea generation and offers the purest play on the strong investment opportunities in the regional market created by the combination of China’s increased equity market opening and structural economic shift.
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This communication has not been updated since publication. The views expressed are valid at the time of publication only and may not reflect current thinking.