China remains a compelling investment proposition despite the regulatory clampdowns that have left investors rethinking their allocations to the country, according to Genevra Banszky von Ambroz, co-manager of the Smith & Williamson MPS.
While government intervention in areas such as technology, education and gaming has created significant volatility in the Chinese market in recent months, Banszky von Ambroz says China continues to present an attractive opportunity for investors with longer time horizons, and a balanced approach to managing their exposure in the Asia Pacific region.
“A lot of investors have been rethinking their position in China following the events of the summer and early autumn” she says. “But despite these recent issues, we do not believe the country’s growth, consumption, or innovation stories have changed – it remains a very exciting market to be in.
“China is an emerging market which, and as with many other emerging markets, carries political and regulatory risks. It’s all about managing these risks and finding the best managers to find the best opportunities for our clients.”
As part of their exposure to the market, the Smith & Williamson MPS team holds Fidelity China Special Situations.
“Although the fund has had a difficult time recently, where we really like a manager, like we do Dale Nicholls, we will support them through volatile markets. As in the first phase of the pandemic, market volatility will have thrown up many attractive opportunities. His authority to own unlisted companies which many of the more exciting firms in China are, is an additional bonus.”
To create a balanced exposure to China, S&W MPS also holds the PineBridge Asia ex-Japan Small Cap Equity fund, which the team added during their summer rebalance.
“The PineBridge fund doesn’t own the China mega-cap names by virtue of what it is,” says Banszky von Ambroz. “This is useful when building balanced portfolios so our funds don’t all have exposure to the same companies.
“The fund focuses on mid and small caps which have underperformed the large caps over the last 10 years, as the money has flowed into the big index names and ETFs.”
Banszky von Ambroz says the MPS team gains further balance across the portfolios by investing more widely across other major emerging markets like India, which has been a beneficiary of recent negative sentiment towards China.
“The Goldman Sachs India Equity fund, which we have held for almost six years, is our preferred method of accessing the market, due to the fund focusing on good quality growing companies from across the cap spectrum. This is a fund we tend to have exposure to regardless of market timing – it has a management team we rate and we’re happy to keep the position running.”