First State Investments is offering a pure A-share strategy just to institutional investors while boosting its regional equities team.
Michael Stapleton, Hong Kong-based managing director for Asia and Japan, says the firm has run a Greater China strategy since 2009 that included exposure to China A-shares via a $120 million quota as a qualified foreign institutional investor (QFII). It also used the QFII quota to provide A-share exposure in its pan-Asia equities fund.
This summer the firm was awarded an additional $100 million quota by China’s State Administration for Foreign Exchange. In addition to using that to provide additional exposure for its Greater China and regional equities funds, First State has established a separate vehicle for its institutional clients. This is a Dublin-based fund that invests purely in A-shares. First State can also provide institutional clients with segregated accounts of A-share exposure.
Stapleton says this “pure” China strategy is limited in size, and ultimately will account for 30-40% of the new quota. But it is the first time First State has provided such an exposure.
The A-share portfolio is very concentrated, around 20 stocks. “This is only for a sophisticated investor willing to take a long-term view,” Stapleton says. Clients and potential clients such as US endowments, sovereign wealth funds and Australian pension funds are being approached with the idea.
Although Safe usually gives QFII recipients a six-month window to fill their quota, Stapleton says the timing is also attractive because the mainland bourses are cheaply valued, after several years of poor performance.
Part of the reason to support marketing such a strategy is the maturation of First State’s local equities capability. The firm is transferring John Asante, head of global emerging-market equities, from Edinburgh to Singapore.
Asante is a senior portfolio manager at the firm. He works alongside Angus Tulloch, Edinburgh-based head of Asia ex-Japan equities, and Martin Lau, who runs the Greater China portfolios.
Moreover, First State is now looking to hire China-focused equity analysts, to be based in Hong Kong. The team in Hong Kong is five-strong, including Lau and Xian Quanqiang, the other portfolio manager, along with three analysts.