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FSN Singapore 2022 – Fund selectors call for product innovation in China

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Fund selectors consider it a challenge to find the right mutual funds to get access to onshore China from an offshore perspective. What’s more, there is the struggle to identify the right partners that are focusing on specific sectors in the country.

That is according to Edouard Hoepffner, head of investment services Asia at UBP, and Gareth Nicholson, CIO and head of discretionary portfolio management at Nomura International Wealth Management.

Edouard Hoepffner, UBP

The electronic vehicles and renewable energy sectors are some examples where there is no true product to give investors offshore access, pointed out Hoepffner during a fireside chat at Asian Private Banker’s 9th Fund Selection Nexus in Singapore.

“We find it difficult,” he told delegates. “There are ETFs, but we like the idea in these sectors to go with active management. Even in private markets, we need to find the right partners, so we are looking actively. We haven’t identified the key products that we want to focus on.”

The boutique private bank is centred on sectors that are part of China’s 14th Five-Year Plan — such as battery, renewable energy, smart city and digitalisation, innovative biotech, and domestic consumption.

This year, Hoepffner hasn’t removed any China focused equity funds from the product shelf, and instead added more thematic funds and ETFs for both China and other regions. In addition, he has become more cautious on fixed maturity plans (FMPs) and alternative funds in China credit.

Combining liquidity and alpha

Nomura too likes electric vehicles and batteries, as well as solar and security in China, shared Nicholson, adding that finding the right sector-specific partners that are not too broad has been struggle.

Gareth Nicholson. Nomura

“In addition, we are starting to see some interesting opportunities, and we are looking at strategies from a DPM perspective — including a combination of liquid ETFs,” he said.

“We want this alongside high conviction names so we are creating the liquidity but also adding some potential alpha. In China, we really want to zero in on the companies that are doing what they are saying to us. That’s important at the moment.”

Distinct from other markets

Both executives agreed that taking a long-term view could provide investment opportunities in China.

Hoepffner considers China to be in a better position from a cyclical perspective than developed markets because the country is expected to provide additional though monetary easing, while developed markets are implementing monetary tightening policies to reduce inflation risks.

“We are seeing investors with a higher risk profile, seeking selected opportunities on the equity side. But on the fixed income side, the yet to be resolved damage of the housing crisis has really discouraged investors to look at that sector.”

Nicholson suggested that we need to look at China with a slightly different lens because it is distinct from other markets. “One of the major differences has been the response to COVID-19. And maybe — if we look at it today — many will probably say that it has run too long, and it is causing a drag on the economy.

He pointed out, though, that China’s COVID policy in 2020 enabled manufacturers that would otherwise have failed and laid the groundwork for the V-shaped recovery. “So yes, China is a tricky market,” he added. “But don’t run away from the risk; rather dive in and try understand it.”

Asian Private Banker would like to thank the following sponsors of Fund Selector Nexus Singapore 2022

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