Capabilities China Equity
Is now the time for a dedicated allocation to China?
It is the time to consider whether reliance on emerging market exposure through indices is sufficient to meet your investment goals and expectations. China’s growth and influence on global markets demands a more considered and deliberate exposure to China, including a direct component.
Global investors are under exposed to China
China is on track to overtake the US as the largest economy in the world within the next seven years. It already boasts the second-largest equity and bond markets globally, with an array of both well-established industry leaders and up-and-coming innovators.
Global investors remain under exposed to China, and with the opportunity set as expansive as the country itself, it’s crucial for international investors to gain the most effective exposure.
China’s GDP as a share of global economy has been growing consistently
Investors are still under exposed in terms of country allocations
Understanding China’s multiple share types
China equity markets are split into many different share types, which can be grouped into onshore-listed (mainland China) and offshore-listed (Hong Kong and US) shares. Access for foreign investors to China A shares has been improving following significant regulatory changes. In fact, China recently lifted restrictions entirely for the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) schemes, integrating both programs into one effective November 2020.
Transition to a new economy
The Chinese government has shown commitment to facilitate the economy’s transition from investment to consumption, and from manufacturing to services. Estimated 65% of households in China will be middle-income class by 2027 - underpinning the economic transition to a consumption driven economy*. (World Economic Forum, Future of Consumption in Fast-Growth Consumer Markets: China, 2018)
Too big to ignore
Second largest & one of the fastest growing economies in the world, with 18.5%* of the world’s GDP. Transitioning from export-led to consumption driven economy with heavy spending in R&D. (*Source: World Bank, 2020.)
Index inclusion effect
Increase of China equity weighting in global indices (MSCI, FTSE, S&P) is likely to spur further investment and increased participation by international institutional investors.
Portfolio diversification
Exhibits low correlation with other global markets, and unique market characteristics.
Demographics
Consumption growth driven by a rising middle class and a well-educated labour force, with increasing levels of wealth.
Digital economy
E-commerce growth is driven by the increased penetration of mobile phones and digital technologies, and rising income levels.
Structural transformation
Government policies have focused on boosting high-tech production, pivoting from export-oriented and fixed-asset investments (Old Economy) to domestic consumption and tech innovations (New Economy).
Benefits of broad Chinese equities investing
The Chinese equities are still subject to high volatility, but regardless of which active approach (fundamental or quantitative) investors choose, buying into companies that possess solid long-term prospects and can deliver earnings growth at an attractive valuation level may help investors capture strong alpha in the China market.
Our goal is to take advantage of market inefficiencies through a bottom-up fundamental analysis.
Competitiveness
Chinese companies are increasingly competitive, presenting good investment opportunities. Many have built strong financials and market share on the back of significant and growing domestic consumer demand and increasing international expansion.
Valuation
Reasonable valuation levels compared to both China’s history and relative to other developed and emerging markets.
Long-term investment horizon
Long-term fundamental investing can deliver alpha opportunities as the market is much less efficient than developed markets. The approach focusing on company fundamentals and targeting biases of investor behaviours,have worked well in China over the long term.
The asset class that cannot be ignored
The Chinese A-share market constitutes the second largest equity market in the world, after the US. It has a market capitalisation of US$11.8 trillion* (*as at 30 April 2021). However, despite being the world’s second largest, China’s market is still small relative to the size of its economy. With the central government increasing its pace of financial market reforms, we believe the A-share market is set to grow rapidly.
Competitiveness
Chinese companies are increasingly competitive, presenting good investment opportunities. Many have built strong financials and market share on the back of significant and growing domestic consumer demand and increasing international expansion (e.g. technology and logistics).
Valuation
Reasonable valuation levels compared to both China’s history and relative to other developed and emerging markets. As the world's 2nd largest economy matures into a consumption and technology based economy, the conditions are ripe for world beating companies to emerge.
Fundamental investing
China’s A-share market is much less efficient than developed markets, and long-term fundamental investing can deliver strong alpha opportunities.
Comprehensive China A-shares platform
We are particularly focused on A-shares, as we believe they may present the opportunity for foreign investors. This is due to recent changes in regulation aimed at increasing foreign investor activity in China’s financial markets.
A-shares are the conduit for embracing the development of the domestic Chinese economy; a more consumption orientated model to service a 1.4+ billion population.
$120b Managed China assets across the group
Source: Invesco, AUM as of date is December 31, 2020.
80+ On-the-ground investment professionals
Source: Invesco, AUM as of date is December 31, 2020.
1992 A pioneer in Chinese equities with presence since 1992
Fundamental research for the long term
Focus on fundamentals-driven research to harvest inefficiency premium over the long term investment horizon.
Firm conviction in sustainable growth
Idea generation driven by local insights focusing on identifying sustainable growth opportunities.
ESG
We are committed to being a responsible investor through four key approaches to incorporating ESG considerations: industry advocacy, investment integration, active ownership and client focus.
Quantitative strategies
Quantitiative strategies systematically apply evidence-based research to help achieve outcomes.
Systematic investing works in China
Various classic factors may work in China but will require careful adjustments to adapt to its unique market landscape. Value investing have performed relatively better as the market experienced a gradual institutionalization. Low volatility adjusted for size and beta also showed a positive return over the long term.
Harness Systematic Factor Premium
Evidenced by academic research and proven by practitioners, many systematic investing ideas drive returns in the China A share markets. Our quantitative equity team conduct both research and portfolio management duties as an integrated team driving our quanititiatve analysis.
$109b $109 billion in factor-based AUM
Invesco is one of the largest factor- based managers of ETFs in the world.
Source: Invesco. All data as of 30 September 2020.
35 Deeply resourced research
35 dedicated researchers teamed with practitioners across regions.
Source: Invesco. All data as of 30 September 2020.
1983 Experience
Invesco’s practical expertise managing live portfolios dates back to 1983.
Investment breadth
A large investment universe of over 3,700 companies with good liquidity. Much less concentration in industry, market capitalization and styles.
Improving data quality
Reasonable and improving data quality and coverage in China makes systematic investing possible.
Proven effectiveness
Evidenced by academic research and proven by practitioners, many systematic investing ideas drive returns in the China A share markets.
Long-term secular trends in China
The Chinese economy has undergone a dramatic structural transformation in the last five years, shifting from growth via infrastructure spending to present-day, where consumption, services and the “new economy” sectors, such as technology, healthcare and green economy, are the main contributors of the economy.
Technology
Technology
Chinese technology, ecommerce and internet companies continue to innovate and grow. Hardware manufacturers of 5G technology can also bring value to the supply chain.
Healthcare
Healthcare
Rising demand from China's aging 1.4 billion population. Healthcare is the second largest A-share sector in China with over US$1 trillion in total market capitalization, almost 400 investable stocks and diverse subsectors ranging from biotech to medical devices.
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What’s driving growth in China’s biotech industry?
Chris Liu
Research firms expect that the mainland biotech market will be worth US$96 billion by 2023. Chris Liu, Senior Portfolio Manager within Invesco’s China A Investments team summarizes some factors driving the growth of this market.June 22, 2021 -
China’s healthcare growth story outshines global peers
Chris Liu
From vaccine development to innovative drugs and biotechnology, China’s healthcare companies have been growing strongly, outpacing some of the world’s leading industry players. We explore why one of China’s most diverse and expansive sector, its healthcare industry, is emerging as a growth opportunity.April 1, 2021
Green economy
Green economy
Sectors like electric vehicles and renewable energy will likely benefit as China moves towards carbon neutrality. China is the largest EV user market in the world and maker of lithium-ion batteries. (Source: Forbes. Why China Is Dominating Lithium-Ion Battery Production, 2019)
Investing in China with Invesco
At Invesco, we provide trusted China outcomes with a seamless global experience.
Deep China expertise meets global best practice
In collaboration with Invesco Great Wall (IGW) - our joint venture and a 1st Sino- American fund management company, Invesco is able to bring unique local insight combining with global practices to our global clients.
Invesco helps IGW build capabilities in active equities, quant equities, fixed income and multi-asset solutions and IGW works closely with Invesco to develop client-centricity, robust risk management and strong compliance practices.
(Invesco Great Wall is a 49% Invesco-owned joint venture.)
A China pioneer
Invesco built the first Sino-US fund management joint venture in China with >500 employees across offices in Hong Kong, Shenzhen, Beijing, Shanghai, Guangzhou.
Strong leadership position
Invesco Great Wall (Invesco's joint venture) was rated as #1 FMC JV onshore platform by Z-Ben in 2019 and 2020*. (* Source of ranking: Z-Ben China ranking 2019, 2020)
Experience and expertise
3 decades of experience in China investing. Average of 25 years of industry experience across senior investment leaders.
$120bn Managed China assets across the group
Source: Invesco, AUM as of date is December 31, 2020.
80+ On-the-ground investment professionals
Source: Invesco, AUM as of date is December 31, 2020.
18+ 18 years of experience operating in onshore China
Meet the team
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Mike Shiao
Chief Investment Officer, Asia ex Japan, Invesco
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Kevin Chen
Deputy CEO and Head of Equity Investment, Invesco Great Wall
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Haiwei Li
Deputy CEO and Quant & ETF CIO, Fund Manager, Invesco Great Wall
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
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