Article

Invesco – pioneering investment in China

April 20, 2021
Chris Liu
Chris Liu
Senior Portfolio Manager
Invesco – pioneering investment in China

Invesco recognized China’s huge investment potential early, launching its first Chinese equity fund back in 1992, and establishing the first Sino-American joint venture  - Invesco Great Wall (IGW) Fund Management Company Limited in 2003. It launched the first Shanghai/Hong Kong/Shenzhen stock connect fund and is an innovator among onshore Chinese quantitative equity funds.

Today, Invesco provides one of the largest and most comprehensive investment platforms in China and continues to lead in this fast-changing market.

  • We lead the management of our China joint venture: We work as one team, IGW, our joint venture, which applies our international best practices in investment philosophy, risk oversight and governance.
  • We offer direct, unique insight on China: Our 275-plus local staff in China serve millions of Chinese retail and institutional clients. We invest and learn from the market every day.
  • Experienced, stable investment team: Our on-the-ground investment team is one of the largest and most experienced in China. We are one of the leading asset managers in onshore Chinese quantitative investing.
  • Connected to global expertise: We offer global investment experience, products, client service and integrated reporting for a seamless, international, institutional client experience.
  • We have a broad range of capabilities for investing in China: Our scope includes equities, fixed income, quantitative strategies, real estate and private equity. Our equity team can draw upon the research and knowledge of their colleagues in China and around the globe. IGW’s investment and research teams are fully integrated and work closely together in an open, sharing and collaborative environment. This local knowledge and expertise is complemented by the global insights provided by the resources of a major asset manager with offices and capabilities around the world.

Invesco manages US$120 billion of China-related assets and has a global AUM of US$1,349.9 billion as at December 2020.2

Accessing the potential of A shares

Our Chinese equity strategies, including healthcare, allow investors to tap into the substantial potential of China’s A-share market.1 The A-share market is the world’s second largest, but it is still small relative to the size of China’s economy. Judging from China’s current pace of financial-market reforms, our belief is that the A-share market is set to grow rapidly. Here we outline the trends that make the asset class attractive:

  • A proxy for China’s economic growth

Changes to indices and plans for capital-market reforms should strengthen the correlation between A-share performance and China’s economic development.

  • Increasing institutional participation may temper volatility

The A-share market is known to be volatile, reflecting the dominance of retail investors. Increasing participation from institutional investors should ensure the market becomes less susceptible to the sentiment of retail investors.

  • Improving fundamentals

We expect China to focus on improving the quality of growth while gradually trimming excess capacity and bringing down leverage. As a result, we may see Chinese companies’ profit margins and financial strength gradually improve.

  • Strong alpha opportunities

In our view, idiosyncrasies in the market point to opportunities for stock-picking strategies: actively managed median mutual funds have outperformed their benchmark by more than 6.6% over the past five years.

Low correlation to global markets
Low correlation to global markets
Source: Bloomberg, FactSet, data as of June 30, 2019.

Low correlation to global markets

China A share benchmark index has low correlation to other major equity indices

CS 300 (China A shares) 1.00  
MSCI China H 0.73 1.00  
MSCI AC Asia Pacific
ex JP		 0.54 0.84 1.00  
MSCI EM (Emerging Markets) 0.53 0.83 0.98 1.00  
MSCI USA 0.43 0.63 0.78 0.76 0.66 1.00  
MSCI AC European 0.39 0.62 0.82 0.81 0.66 0.84 1.00  
MSCI AC World 0.46 0.70 0.89 0.87 0.72 0.96 0.94 1.00
  CSI 300
(China A Shares)		 MSCI
China H		 MSCI AC
Asia Pacific
ex JP		 MSCI EM
(Emerging
Markets)		 MSCI
Japan		 MSCI
USA		 MSCI 
AC
European		 MSCI AC
World

Source: Bloomberg, FactSet, data as of June 30, 2019.

Award-winning service and performance

  • Invesco was ranked number 1 in China onshore business and number 3 overall in the fund consultancy Z-Ben Advisors’ 2020 list of the top foreign firms in China.
  • IGW was awarded Outstanding Fund Management Company & Management Team (7~15 years group) by Asset Management Association of China (AMAC) in 2018. IGW was one of ten onshore fund houses recognized for their excellence in management. AMAC is a self-regulatory body under the supervision of the China Securities Regulatory Commission.
  • IGW won China Securities Journal’s “Golden Bull Fund Management Company Award” for three consecutive years, from 2018 to 2020. The Golden Bull awards are the most prestigious of their kind in China’s asset-management industry, and the Fund Management Company Award recognizes recipients for their outstanding performance in fund management.

Positive outlook in 2021 and beyond

We remain positive on the China healthcare sector and the wider A-share market in 2021. Having efficiently contained the pandemic, China is experiencing a strong economic recovery. The country is also seeing foreign and domestic inflows from bank wealth-management products into equity funds.

Featured articles

  • 1 RMB-denominated equity shares of China-based companies that trade on the Shanghai and Shenzhen Stock Exchanges that are open to foreign investors.

    2 Any reference to a ranking, a rating or an award provides no guarantee for future performance results and is not constant over time.

  • 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.

    As a large portion of the strategy is invested in less developed countries, you should be prepared to accept significantly large fluctuations in value.

    As this strategy invests in a particular geographical region, you should be prepared to accept greater fluctuations in value compared to a strategy with a broader investment mandate.

    Investment in certain securities listed in China can involve significant regulatory constraints that may affect liquidity and/or investment performance.

    The strategy invests in a limited number of holdings and is less diversified, and therefore this may result in large fluctuations in value.

    As this strategy is invested in a particular sector, you should be prepared to accept greater fluctuations of the value than for a strategy with a broader investment mandate.

  • Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

    This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

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