The HSBC China Multi Asset Income Fund will be diversified among H shares in Hong Kong and China-listed A and B shares as well as US dollar Chinese bonds and offshore RMB bonds.
China’s investment landscape supports the diversified nature of multi-asset funds because asset classes are uncorrelated, with no single asset class consistently outperforming, said Denis Gould, CIO, multi-asset and wealth.
In addition, China A shares have a low correlation with US equities (0.09%), global equities (0.14%) and even with Hong Kong H shares (0.25%).
“It’s extremely useful from a multi-asset perspective to have this low correlation and then [the investor] will get the diversification benefits.”
Gould said the fund was different from some peer funds because it intends to “capture big sweeps of valuation change through the cycle, based on longterm expected returns in asset classes. We won’t be hyperactive month-to-month or quarter-to-quarter. We’ll add value as the asset prices cycle.”
Mandy Chan, head of Chinese equities, said price competition and margin contraction due to overcapacity issues in China hit return on equity, which caused Chinese stocks to be de-rated.
“Return on equity is one reason for the de-rating and we think that’s going to change.
“People sell Chinese equities indiscriminately because of macro concerns. There is clearly mispricing in the market.”
She cited healthcare, consumer discretionary, telecom and utilities as some sectors with valuations lower than their historical average.
The fund can invest up to 10% of assets through the stock connect, which is set to launch November 17.
“We fully intend to invest through the stock connect,” Chan said.
Cecilia Chan, CIO of fixed income, added that the Chinese bond market offers products with a high yield but lower volatility than other major markets.
RMB bonds also have a low correlation with other major markets. The ten-year HSBC CNH Bond average yield has been 4.41% compared to 2.34% for US treasuries.
Chinese bonds are also less impacted by US interest rate hikes than other markets, she said.
The fund is looking at opportunities in onshore bonds as well, Chan added.
