Invesco Asset Management has moved to use its QFII quota to offer public funds for the first time with the launch of two China equity products to give retail investors A-share exposure.
The firm was one of the first asset managers to receive a QFII licence as far back as August 2004, although until yesterday its focus had purely been on private placement.
But now it has launched the Invesco China Opportunity Fund III and the Invesco PRC Dynamic Equity Fund (PDE Fund).
The COF III Fund will invest at least 70% of its assets in A-shares, while the PDE Fund will have the flexibility to invest in equities including A-shares, B-shares, H-shares, red chips, China plays and collective investment schemes.
These latest launches come after the firm received a qualified foreign institutional investor (QFII) quota of $100 million last December. That was its third quota from the China Securities Regulatory Commission, after it was awarded $50 million in March 2005 and $200 million in December 2006.
While it launched its first A-share portfolio in 2005, Invesco has allocated its first two quotas through its private funds. As of February 29, the firm managed over $460 million of QFII assets.
Samantha Ho, investment director for Invesco Asset Management Asia, sees now as the right time to enter the Chinese equity markets given the low valuation levels.
“The 2012 forward P/E forecasts of China A-shares and MSCI China are at 9.1x and 9.3x respectively, offering a good opportunity for long-term investors looking to gain exposure to China’s cyclical upturn and secular growth story.”
Referring to average historical P/E multiples at over 20x, Joseph Tang, investment director, adds that investors will be able to achieve healthy profits if reversion to the mean occurs.
China A-shares are meaningful to investors as they “have relatively low correlation with other major market indices, including MSCI China, global emerging markets and major developed market indices”, says Tang, praising their diversification benefits.
He also points out the mismatch between the sector weighting of MSCI China and China’s real economic structure. For instance, the three largest sectors in MSCI China are financials (35%), energy (19%) and telecommunication services (14%), while the combined percentage of these industries only counts for 16% in China’s real economy.
As China’s A-shares are not part of MSCI China, Tang stresses that picking from a universe of more than 2,200 stocks in the A-share market – which is a better proxy to China’s real economy – can help investors to capitalise directly on China’s economic growth potential.
The key investment themes of the two new funds will be domestic consumption supported by rising income in China and infrastructure spending in less-developed areas such as the country’s middle and western regions.
The IPO period of the PDE Fund is from March 19 to April 20, offering multi-currency choices of Australian dollars, Canadian dollars, Hong Kong dollars, Singapore dollars and US dollars. The COF III Fund will start to receive subscriptions from April 27, with US dollars as the base currency.
Both funds offer retail class (Class A with minimal initial investment of $1,500) and institutional class (Class C, $250,000). The subscription fees are up to 5.25% and the management fees are 1.75% (Class A) and 1.25% (Class C).
Invesco has over 600 investment professionals managing total AUM of $625.3 billion globally.