Canada Life Asset Management, the British investment arm of Canadian insurer Great-West Life, has hired a new portfolio manager for Asian equities, who said the firm had been underweight Chinese stocks since at least the start of the year.

Ming Kemp joined on January 4 to manage Canada Life AM’s £131 million ($182.4 million) Asia Pacific equity fund, succeeding Kim Lee, who passed away last year. Canada Life has £40 billion in AUM, 80% of which is contributed by Canada Life’s general account. 

Kemp previously worked at London-based Polar Capital until the end of 2020 and will not be replaced, a spokeswoman told AsianInvestor. The firm’s Emerging Market Income Fund (£70.3 million as of January 29) will be merged with its Emerging Market Stars Fund (£301.9 million). William Calvert, lead manager of the EM Income Fund, will retire, added the spokeswoman.

When Kemp started at Canada Life AM, she was comfortable with the portfolio's biggest allocation and has not felt a need to change it.

Ming Kemp

“We are a few percentage points underweight China in relation to our benchmark and slightly overweight Southeast Asia,” she told AsianInvestor last week. As of end-January, China represented 38.64% of the MSCI Asia Pacific ex-Japan Index, while Southeast Asia falls within the ‘Other’ weighting of 13.83%.

Canada Life AM's rationale is that while the likes of China, South Korea and Taiwan contained the Covid-19 outbreak far quicker than most countries and have seen their economies recover accordingly, other markets – including several in Southeast Asia – have lagged, but are set to catch up.

Greater China and Korea have seen a very strong rebound in demand for consumer goods and electronics, noted Kemp, and their stock markets have come back particularly quickly and strongly.

“If there are no glitches in the Covid vaccine rollout, we think there should be a convergence in economic growth Asia-wide,” Kemp said.

Especially since China has already started to tighten its monetary policy, well ahead of other nations.

“China has already effectively begun to normalise monetary policy and the central bank has taken liquidity out of the market, as they see growth has returned and all other economic indicators look good,” Kemp said. “I don’t think we will see any similar moves in the rest of Asia for some time.”

The recent stutter in stock prices in China – and admittedly some other markets – that has seen the CSI 300 shed 6% since February 19, suggested to some that a bigger pullback is on the cards.

But Kemp is sanguine. “The recent market risk-off correction, primarily fuelled by US real yield rises, were across regions and not China-specific. Some buying opportunities may present themselves should the current correction continue and valuations become more palatable.”

US-CHINA TENSIONS

In the medium to longer term, though, she conceded that US restrictions on trade with China and on investments into certain mainland stocks were a concern.

“Beijing has a very ambitious plan to increase policy to reduce its dependence from external suppliers on core technologies and domestic consumer demand for its goods,” Kemp said.

“It will be interesting to see what is said during critical meetings in the coming week [the Chinese People's Political Consultative Conference on March 4 and the 13th National People's Congress the following day]."

Beijing is expected to continue promoting and developing its own key technology, she noted. “But [its ability to do so] is under threat given US sanctions prohibiting companies like SML and Taiwan Semiconductor Manufacturing from supplying Chinese companies such as Huawei.”

All this being said, Canada Life AM’s exposure to China is likely to rise in line with the country’s growing weighting in MSCI’s indices, said Kemp. “As long as the Asia Pacific benchmark doesn’t look totally out of proportion with the MSCI Global Emerging Markets index.”

More broadly, other big European insurers – most of which invest in Asian equities as part of their broader allocation to emerging markets – are seen to be showing greater interest in Asian and particularly Chinese stocks.

"In early 2020 we saw many [European] insurance groups de-risking their equity allocation as a result of the market volatility created by the Covid pandemic," said Ed Collinge, London-based global head of insurance at Dutch fund house Robeco.

"However, we are now seeing renewed interest in Asian and specifically Chinese equities from larger insurance groups who break down their EM portfolios on a more granular basis," he told AsianInvestor.