Quick Take: Chasing Growth in China A-Shares?

May 2021

Offshore ownership of China-A shares: Overwhelmingly growth-oriented

  • Over the past two years, growth stocks have come to dominate holdings through the northbound Hong Kong Stock Connect program. The blue markers (below) are stocks where 10% or more of the available float is held by users of the Hong Kong Stock Connect.
  • Moreover, all but 4 of these 91 most popular stocks have undesirable value characteristics. In other words, while onshore investors are tilting their portfolios towards growth, they are also — whether intentionally or not — ignoring valuation.

Hong Kong Stock Connect Investors: Owning Growth, Ignoring Valuation

Average Axioma growth and value scores of the most popular stocks owned on the northbound Hong Kong Stock Connect program from 2019-March 2021. These are stocks where greater than 10% of the available float is held by participants of the northbound Hong Kong Stock Connect program.
For illustrative purposes only. Sources: Acadian analysis. Index data source: MSCI, Copyright MSCI 2021, All Rights Reserved. Unpublished. PROPRIETARY TO MSCI. Ownership data source: Wind. Source of stock-level value and growth characteristics: Axioma/Qontigo. All Rights Reserved. See full disclosure on the Legal Disclaimer page.

China A-Shares: Risks in ignoring their full breadth

  • China A-Shares are often perceived as growth-centric. Over the past 2 years, this perception has been self-reinforcing (below).
  • The demand for growth exposure combined with the historically strong outperformance of these stocks has resulted in a substantial and widespread tilt towards growth.
  • This positioning, while recently profitable, ignores the long-term returns offered by value signals in the China A market and risks reversion of growth’s outperformance. Investors would be wise to seek diverse drivers of excess returns in their China-A allocations.

Style Performance: Excess Return of Value & Growth in China-A Shares

Excess return of MSCI China A Onshore style indices vs. the cap weighted index.
For illustrative purposes only. Sources: Acadian analysis. Index data source: MSCI, Copyright MSCI 2021, All Rights Reserved. Unpublished. PROPRIETARY TO MSCI. Ownership data source: Wind. Source of stock-level value and growth characteristics: Axioma/Qontigo. All Rights Reserved. See full disclosure on the Legal Disclaimer page.

General Disclaimer

 

Acadian provides this material as a general overview of the firm, our processes and our investment capabilities. It has been provided for informational purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or to purchase, shares, units or other interests in investments that may be referred to herein and must not be construed as investment or financial product advice. Acadian has not considered any reader's financial situation, objective or needs in providing the relevant information.
The value of investments may fall as well as rise and you may not get back your original investment. Past performance is not necessarily a guide to future performance or returns. Acadian has taken all reasonable care to ensure that the information contained in this material is accurate at the time of its distribution, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.
This material contains privileged and confidential information and is intended only for the recipient/s. Any distribution, reproduction or other use of this presentation by recipients is strictly prohibited. If you are not the intended recipient and this presentation has been sent or passed on to you in error, please contact us immediately. Confidentiality and privilege are not lost by this presentation having been sent or passed on to you in error.
Acadian’s quantitative investment process is supported by extensive proprietary computer code. Acadian’s researchers, software developers, and IT teams follow a structured design, development, testing, change control, and review processes during the development of its systems and the implementation within our investment process. These controls and their effectiveness are subject to regular internal reviews, at least annual independent review by our SOC1 auditor. However, despite these extensive controls it is possible that errors may occur in coding and within the investment process, as is the case with any complex software or data-driven model, and no guarantee or warranty can be provided that any quantitative investment model is completely free of errors. Any such errors could have a negative impact on investment results. We have in place control systems and processes which are intended to identify in a timely manner any such errors which would have a material impact on the investment process.
Acadian Asset Management LLC has wholly owned affiliates located in London, Singapore, and Sydney. Pursuant to the terms of service level agreements with each affiliate, employees of Acadian Asset Management LLC may provide certain services on behalf of each affiliate and employees of each affiliate may provide certain administrative services, including marketing and client service, on behalf of Acadian Asset Management LLC.
Acadian Asset Management LLC is registered as an investment adviser with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any level of skill or training.
Acadian Asset Management (Singapore) Pte Ltd, (Registration Number: 199902125D) is licensed by the Monetary Authority of Singapore.
Acadian Asset Management (Australia) Limited (ABN 41 114 200 127) is the holder of Australian financial services license number 291872 ("AFSL"). Under the terms of its AFSL, Acadian Asset Management (Australia) Limited is limited to providing the financial services under its license to wholesale clients only. This marketing material is not to be provided to retail clients.
Acadian Asset Management (UK) Limited is authorized and regulated by the Financial Conduct Authority ('the FCA') and is a limited liability company incorporated in England and Wales with company number 05644066. Acadian Asset Management (UK) Limited will only make this material available to Professional Clients and Eligible Counterparties as defined by the FCA under the Markets in Financial Instruments Directive.