“Challenges and risks”
Last month, asset manager East Capital launched a UCITS-compliant China fund, which it said is the first to be allowed to invest up to 100% of its portfolio in Chinese A-shares through the Stock Connect scheme.
East Capital’s Hirn said it would be unfair to say Stock Connect has been underperforming, particularly given the short amount of time it has had to get off the ground. She also pointed to developments which could see significant improvements in the scheme.
She said one of the reasons the volumes have been rather low on the northbound link is that many fund managers have been reluctant or unable to trade through Stock Connect because of China’s pre-trade checking requirement. “Previously regulators have waited before giving approval, but this is changing now,” she said.
“Another issue is the risk related to the beneficial ownership issue, which many investors including pension funds cannot accept.”
Irrespective of the access issue, Hirn said the Chinese A-share market is interesting because it offers a diversified and wider exposure to consumption, benefitting from the ongoing changes in the Chinese economy, and also showing low correlation to other markets.
However, she added: “It is also a market with lots of challenges and risks, and that many investors will not want to enter for still some time.”
