Ask The Experts: A Chinese Equity Fund with No Exposure to the "Big Four" Chinese Banks
Nicholas Yeo, Director and Head of Equities at Aberdeen International Fund Managers Limited, shares his outlook for the Chinese equity market as well as he views on the Chinese Financials sector and explains why the Aberdeen China Opportunities Fund does not have any exposure to the "Big Four" Chinese banks.
Over the last 12 months, investor concerns mainly centred on China’s ability to engineer a soft landing for its economy. What were your views on this matter and how did you position the fund in 2011?
- China has gone through a credit explosion after the Lehman crisis with banks ramping up lending in 2009 and 2010 on the back of government policies
- Banks used as vehicle to stimulate economy through credit disbursement
- Resulting inflation and property bubble meant the government had to reign in monetary policy in 2011
- Such policies do not matter to the fund as the fund uses a bottom-up approach in stock selection and does not consider marcro-economics
- Focus is on quality companies that will have their means to ride through a tight monetary policy
- Many companies on the portfolio also based in Hong Kong, which will see less impact from tightening monetary policies
As we enter 2012 however, sentiment became more optimistic. Do you think the rally is sustainable and are you making any changes to the fund’s allocation in light of more encouraging news coming out of China?
- Market has gone up significantly, especially for the 2 underperforming countries, India and China
- Fund has seen interest in recent week due to expectations that the Chinese government will ease monetary policies as inflation rates are coming down
- No change in fund’s portfolio
- Not of the view that the government will loosen monetary policies
- Optimistic on valuations and upside potential in the longer-term
The fund has a 35.9% allocation to the Financials sector as of its latest January 2012 factsheet. Can you explain your reasons for this large weighting in a single sector?
- To break down the figure, approximately 12-13% will consist of financials, 17% in property, and the rest in other companies such as insurers
- Fund does not invest in the “Big Four” Chinese banks as they are more policy-driven rather than commercial entities
- Fund also does not invest in residential segment of property companies, especially in China
- Property companies are mostly based in Hong Kong, such as Swire, Sun Hung Kai, Hang Lung etc that have exposure to China but also have steady cash flows and are better managed
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