Aroau Capital Holding
ACH A-Share Fund No.8
About the Fund
A-Shares Fund No. 8 is a wholesale equity fund with a primary investment focus on companies listed and traded on the Mainland China stock market, specifically the Shanghai Stock Exchange and Shenzhen Stock Exchange. The fund employs a balanced value investing strategy under a cautious investment mandate to identify high-quality companies with significant growth potential.
The fund is suited for investors who seek to diversify their portfolios with Chinese equities while generating alpha and mitigating uncertainties. With its focus on value investing and hedging strategies, A-Shares Fund No. 8 is designed to navigate the complex and dynamic Chinese equity market.
This presents a unique opportunity for investors to participate in the growth of the Chinese market while managing their risks. Overall, A-Shares Fund No. 8 offers a compelling option for investors seeking exposure to the Chinese equity market.
Fundamentally Different
Investors must recognize the unique characteristics of the Chinese equity market and differentiate it from other capital markets. Unlike developed economies, the average Chinese consumer has significant room to increase their household debt level. On the other hand, the Chinese market is more active and prone to waves of speculation. Navigating through these waves would require professional guidance to identify high-quality companies and avoid potential pitfalls.
Furthermore, the Chinese government's deliberate deleveraging effort since 2017 has led to more cautious fiscal spending behavior, but it has also created uncertainties for investors. Despite these challenges, the Chinese equity market presents opportunities for investors to achieve attractive returns over the long term, provided they approach it with a well-designed strategy and professional guidance.
Given the unique characteristics of the Chinese market, investors should consider incorporating Chinese equities into their long-term holdings as a strategy to diversify their portfolios and mitigate risks. With the help of a professional advisor, investors can identify high-quality companies with growth potential and manage their investments through the ups and downs of the Chinese market.
Great Companies over Macro-Trends
If investors solely relied on China's GDP growth rate as the primary factor to enter the Chinese equity market, the past few years would have resulted in a disappointing experience. A China-focused conservative index fund's annual return before the COVID-19 pandemic would have been lower than that of a US 60/40 portfolio. Such opportunity loss is less than ideal.
However, the development of a strong investment portfolio focused on Chinese equities should not translate to a bullish bet on China's future economic conditions. At ACH, we firmly abide by the same evaluation principles used to define great companies across all equity markets and reject the notion that great Chinese companies require a separate evaluation criterion. Value is created when the merit of an investor's opinion triumphs those of the market majority.
Therefore, investors should carefully evaluate Chinese companies based on their fundamentals and growth potential, rather than blindly relying on China's GDP growth rate. At the same time, they should also consider the unique characteristics of the Chinese market, such as its susceptibility to waves of speculation, and approach it with professional guidance and a well-designed strategy.
By following these principles, investors can identify high-quality Chinese companies and build a diversified portfolio that can deliver attractive returns over the long term, regardless of short-term economic fluctuations.
Transitioning from Retail-Driven to Institution-Led
The Chinese equity market (A-Shares) has been characterized as being dominated by retail capital, which has caused it to operate under more volatile short-term cycles. However, our research indicates that China is currently undergoing an "institutionalization" process similar to that witnessed in the 1980s US equity market. This process has seen international mutual funds and state-owned pension funds building up greater positions into A-Shares, creating an ideal market environment for both alpha-seeking and value-driven investors.
In this semi-mature market, the key to maximizing the return-to-risk ratio is by selecting great companies and adopting an active management strategy. This is exactly what is offered by A-Share Fund No. 8, which employs a cohesive on-the-ground research process in China and incorporates long-term investment principles that benefit from undervaluation within a transitioning market environment.
By investing in A-Share Fund No. 8, investors can take advantage of the shifting dynamics in the Chinese equity market and capture the growth potential of high-quality companies. With its active management strategy, the fund is well-positioned to navigate the market's short-term volatility and deliver attractive returns over the long term. So don't miss out on this unique opportunity to invest in one of the most exciting and dynamic markets in the world.
China's Equity Market Structure
A comparison of China's equity market structure over the past two decades reveals a tectonic shift in primary market forces driving China's economy. In 1998, the three largest sectors of China's equity market were heavy industry (39%), energy utilities (22%), and minerals (15%). However, in 2020, this has shifted to IT software (36%), financial services (22%), and recreational services (10%).
The post-COVID government-led strategy to transform China's export-led economic model into a domestic demand-powered growth model is expected to continue this trend. This signifies a greater opportunity for investors to identify undervalued assets and capitalize on the shifting dynamics of the Chinese equity market.
By staying abreast of these changes and adopting a well-designed investment strategy, investors can identify high-quality companies and build a diversified portfolio that can deliver attractive returns over the long term. With its active management strategy and cohesive on-the-ground research process in China, A-Share Fund No. 8 is well-positioned to capture the growth potential of China's evolving economy. So seize this opportunity to invest in one of the most exciting and dynamic markets in the world.
1998 China
