In January, the London-based emerging market specialist became the first investment manager outside of Hong Kong to receive the RQFII license from the China Securities Regulatory Commission (CSRC).
The RQFII scheme allows international investors to tap the large pools of offshore RMB funds, providing more efficient access to China’s onshore capital markets.
The three Luxembourg domiciled SICAV-structured funds are the Ashmore Chinese Debt Fund, Ashmore Chinese Equity Fund and the Ashmore Chinese Multi-Strategy Fund.
As the name suggests, the Chinese Debt Fund will invest in RMB-denominated Chinese debt securities issued by sovereigns, quasi sovereigns, and public and private sector companies that are traded on China's two main bond markets, the interbank market and the exchange markets.
Similarly, the Chinese Equity Fund will tap into opportunities in Chinese A-shares listed on the Shanghai and/or Shenzhen stock exchanges while the Multi-Strategy Fund will seek to generate returns through a strategy balanced between these two funds.
“China is not only the world’s second largest economy, it is also one of the most difficult to access, with local markets having been largely inaccessible to foreign investors. The launch of these funds changes this dramatically," said Christoph Hofmann, Ashmore's global head of distribution.
“Domestic Chinese equities and fixed income assets are significantly under-represented in most global portfolios and these funds will allow our clients to make dedicated investments in China and suitably diversify their asset allocation."
Buying opportunities
According to Jan Dehn, Ashmore's head of research, China’s transformation from an export-driven economy to one driven by domestic consumption, along with reform initiatives, will augur well for the country’s domestic bond market.
Furthermore, Dehn believes even as Chinese equities have been hit by poor investor sentiment due to worries over an economic growth slowdown, there are buying opportunities as price-to-earning multiples are at decade lows.
“Valuations are depressed. Chinese indices remain around 75% lower on a price-to-earnings basis compared to pre-crisis peaks and P/BV (price-to-book value) multiples are at near decade lows.
“This is despite a strong expected earnings recovery and the country’s strong fiscal position which means there’s huge firepower to stimulate growth if necessary.”
Northern Trust will look after fund administration, while HSBC will act as the onshore sub custodian for all the funds.
Many asset managers are seeking to tap the demand for RMB products by launching new funds or introducing new share classes, following the expansion of the RQFII pilot programme out of Hong Kong to Singapore, London, Germany and most recently, South Korea.
The funds are currently registered for sale in Luxembourg, Germany, Austria, Switzerland, the UK and Singapore.
