China is undergoing a fast and exciting transition into its “new economy” model which focuses on industries such as consumption, business services, information technology, science and research and social media, to name but a few.
For example in consumption, the upper-middle-class population is expected to continue growing at an annual rate of 17% until 2020*, which could potentially lead to US$ 1.5 trillion* of incremental spending in urban China. In addition, the average age of high income earners is trending younger, resulting in a change in consumer behaviour that may potentially benefit e-commerce and social media companies.
In addition, China’s exports have rebounded on the back of the synchronised recovery in global growth and trade, while supply-side reform has also revived the fortunes of manufacturing. By covering attractive investment opportunities across industries in both the“new” and “old” economies, our strategy allows investors to capture the growth potential in China.
*Source: Boston Consulting Group, The New China Playbook, Decemeber 2015.
Source: Thomson Reuters Datastream, data as of May 2018.
Globally, there are nearly 4,300 publicly-traded Chinese companies in different markets, including nearly 3,100 on the Shanghai and Shenzhen stock exchanges. China’s A-shares market is the world’s second-largest by stockmarket capitalisation, totaling US$7.4 trillion, and second only to the US. Meanwhile, some of the China-related American Depositary Receipts (ADR) are in industries with high growth potential, such as technology and consumption. Also, some leading Chinese technology firms are only listed as ADRs in the US, making it a market that cannot be ignored.
Besides stocks, China’s bond market also offers opportunities for investors. China’s onshore bond market is the world’s third-largest in terms of market value. Yields of China’s onshore bond market began rising at the beginning of this year and have stabilised recently, offering comparatively attractive incomes. Programmes such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect have opened Chinese onshore assets to investors around the world. Together with the inclusion of onshore Chinese stocks and bonds in the global indices of MSCI, it could bring more investment opportunities and growth momentum to the market.
Our comprehensive multi-asset approach can help investors diversify in order to capture a wide range of China growth and income opportunities.
Source: Wind, CICC Strategy Research, July 2018.
The fund’s active asset allocation between Chinese equities (30-70%), Chinese bonds (30-70%), other asset classes (0-20%) and Cash (0-30%)~ aims to capture growth and income opportunities in China. We will also actively manage the exposures to onshore equities and fixed income to take advantage of the growth potential of onshore assets. In addition, risk management on currency and interest rates is implemented from time to time with the aim to reduce potential losses during difficult markets.
~The exact asset allocation may deviate from the range mentioned above without prior notice to investors, please refer to the relevant offering document for details.
With zero or even negative interest rates, income on assets will continue to be one of the important components of investors’ returns. The fund offers investors a regular monthly payout, backed by a sustainable stream of income mainly from the fixed income portfolio, and to a lesser extent from the equities in the fund.
The Fund is managed by Schroders’ three top-class investment teams, namely the Multi- Asset team, the Asian equity team, and the Asian fixed income team. With proven tracking records in Asian markets and awards earned from Lipper Fund Awards and SCMP Fund Awards, these teams are well-positioned to capture the capital gain and income opportunities in China markets.
^In respect of the distribution units, the manager will declare and pay monthly distributions. However, the distribution rate is not guaranteed. Distribution yield is not indicative of the return of the fund. Distributions may be paid from capital of the fund. Investors should note that where the payment of distributions are paid out of capital, this represents and amounts to a return or withdrawal of part of the amount you originally invested or capital gains attributable to that and may result in an immediate decrease in the value of units.
Source: Schroders. Investment involves risks. Please refer to the relevant offering documents for fund details including risk factors. This material is issued by Schroder Investment Management (Hong Kong) Limited and has not been revised by the SFC.