China is a country that everyone loves to hate but the ascent of A-Shares could go a long way to helping change attitudes, according to Investec’s Greg Kuhnert.
Citywire AA-rated Kuhnert, who manages several funds at the firm, including the $3.3 billion Investec Asian Equity fund, said negative news flow around corporate debt levels has hurt investment.
‘Investors are missing out on some of the fundamental changes that are going on inside the country and there are plenty of opportunities to be had,’ he said at a roundtable.
With 38.2% of the fund allocated to China, Kuhnert said access to its domestic economy has been difficult due to licensing issues, but highlighted said this has begun to turn around since 2014.
‘The connection of the two stock exchanges has really opened up the market. In the past, the problem with investing in China has been a lack of coverage and understanding from investors.
'There has been controversy over debt levels and a misunderstanding of the market. But I think the MSCI has gained the attention of investors by including A-Shares in the market indices from next year.’
Kuhnert said part of the problem surrounding China and the lack of investors going into the country has been the focus on short-term headlines.
‘The longer-term picture is that domestic China A-Shares is 0.7% of the MSCI EM index from next year. MSCI has chosen to be very cautious around including Chinese equities in the broader indices.'
Kuhnert said China is very under-represented in global investor’s portfolios today for two reasons.
‘One is that global investors are underweight China in their current benchmarks because of issues in the media and a lack of understanding of what is actually going on in the country.
'The economy is very fast evolving, in particular in the services and the new economy on the tech side of things,' he added.
Kuhnert, who has within his top ten holdings companies such as Alibaba (5.9%) and China Construction Bank (3.5%), said China is also underappreciated due to indexing companies.
‘The fact is MSCI is being very slow and cautious in the way it includes that market into global indices. Broadly speaking, investors are underweight a very large and dynamic economy which is harnessing a lot of opportunities.
‘It’s the lack of understanding coupled with the complexity around accessing the market which has been tough. Now it’s been made a lot easier through the Stock Connect scheme, I think it will make investors actually sit up and take notice of what is happening there.’
Over the three years to the end of October 2017, the Investec Asian Equity fund returned 28.62% in US dollar terms. This compares with a 24.45% rise by its Citywire-assigned benchmark, the MSCI AC Asia Pacific ex Japan TR USD, over the same time period.