Following on from the success of its JF China Pioneer A-share Fund launched in 2006, JF Asset Management says it has successfully applied for a new qualified foreign institutional investor (QFII) quota from the Chinese regulator and is launching its second QFII fund.
With a maximum capacity of $107 million ($75 million for onshore QFII investments), the JF China New Generation Fund will provide investors with 70-85% exposure to A-shares, with another 15-30% exposure to exchange-traded Chinese renminbi fixed income instruments. Assets exceeding the China Securities Regulatory Commission's (CSRC) assigned $75 million QFII mark will be invested in offshore Chinese strategies, including H-shares or possibly offshore renminbi bonds.
Huang Shumin, managing director for JF's Pacific Regional Group, notes the stock portfolio will only consist of 30 to 40 high conviction names driven by bottom-up research. Huang says she will target stocks that will benefit from China's ongoing economic transformation -- individual names that will benefit strongly from the central government's policies to encourage consumption growth.
On the macro environment, she sees the recent stabilisation of house prices and a pickup in retail sales and income growth as strong cues on the long-term investment outlook of investing in A-shares. In the short-term, however, she sees room for a correction in the A-share index from earlier rebounds. This will not impact the timing of the fund launch, she says. By investing only in high conviction names beyond the index, Huang will be able to pursue stocks still with good valuations and return outlooks.
Meanwhile, Arthur Lau, vice-president and fixed income investment manager responsible for the bond portfolio, still sees a compelling story in appreciation of the renminbi over the long run and is positive on renminbi bond exposures.
Following the rebound of Asian currencies in the foreign exchange markets in the past quarter, the renminbi and the US dollar pair remains a laggard in the market, says Lau. Judging by the Chinese economy's strong recovery, Lau, quoting JP Morgan research, says the renminbi will follow an appreciation trend of 3% to 5% in 2010.
China's onshore bond market is valued at a total of about Rmb15 trillion today. But QFII investors have yet to be approved to invest in bonds available in the more dominant interbank market, which makes up some 96% of the bond market.
However, Lau says, with its nimble size, the fund still has plenty of room to shop for opportunities in exchange-traded government treasuries or corporate bond issues, which are worth a total of Rmb500 billion.
Offshore renminbi bond issues, available mainly in Hong Kong, are only targeted to retail investors now. Lau says as these issues become available to institutional investors such as JF, he will likely pursue such opportunities.
The fund's initial offering period will last until July 31, 2009. Minimum investment starts from HK$5,000 through JP Morgan's eTrading channel, or $2,000 in lump sums. JP Morgan offers monthly redemption, subject to repatriation approval from the Chinese regulator. Because of regulatory restrictions, there will be an initial lockup period of three months, where investors will be subject to a 5% penalty charge should they decide to redeem in the period.
JF's first QFII fund, JF China Pioneer A-share fund, was a first retail A-share product launched in 2006. As of today, it remains one of the largest actively managed QFII A-share products, with a total asset size of $432.14 million. Terry Pan, head of retail distribution at JPMorgan Asset Management, says the fund has outperformed its benchmark by 23% since inception.
JF Asset Management's corporate name has been changed to JP Morgan Asset Management. But the fund house has retained its JF brand when it comes to products in Asia.