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Fund Profile

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This is a non-independent marketing communication commissioned by abrdn. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

It has been just over a year since abrdn China (ACIC) was revamped with a new experienced management team installed, led by Nicholas Yeo, who is also the Head of China/Hong Kong Equities at abrdn. Running the portfolio alongside him are Elizabeth Kwik, Alec Jin and Joanne Cheng; collectively, they bring around 50 years’ experience managing Chinese equity portfolios. They are supported by a large team of analysts based in Hong Kong, Shanghai and Singapore (see Management section).

The team have created a high-conviction portfolio of Chinese companies from a large universe of over 1,800 companies through taking a bottom-up approach to stock selection. They take a long-term buy and hold approach, acting as owners of the businesses rather than just investors. They place strong emphasis on identifying quality companies and believe not only that strong ESG credentials improve companies, but also that engagement can help generate alpha for the portfolio (see Portfolio section).

Chinese stocks have had a very difficult year with the benchmark index falling by c. 19.1% since the new strategy was introduced. Although the portfolio has underperformed the benchmark during this period, it has done much better than its peers.

The board expects to attain a Qualified Foreign Institutional Investor Licence shortly and this should enable ACIC to invest into a wider range of Chinese stocks, including those in the Star Market, China’s equivalent of the Nasdaq. ACIC trades at a discount of approximately 12.8% and its latest available OCF, as at 31/10/2021, was 0.98%. However, this is likely to reduce due to the new fee structure and waiving of management fees for the first six months following the reorganisation.

Analyst's View

When Nicholas and the team took over, they had to create a Chinese portfolio from scratch. With a long-term capital growth objective, they have aligned the portfolio to key growth themes. These include the opportunities that arise from China’s changing population dynamics, including rising wealth levels that drives consumerism, and its ageing population creating opportunities in healthcare. Meanwhile, they see huge opportunities from the increasingly digitalised world and the transition to green energy, areas in which Chinese companies are global leaders. To us, these look like promising long-term trends.

However, we acknowledge that it is a difficult time to be an investor in China. Growth in China today is way off the pace from several years ago, while its ongoing property crisis and zero-covid stance has made investors nervous (although there is some hope following the recent lifting of the strictest lockdown measures). However, Nicholas argues that there are strong long-term opportunities in China. Valuations amongst Chinese stocks have come down compared to the world market, at 10.4x for the MSCI China All Share Index versus 14x for the MSCI World Index, based on 2023 forward earnings, while earnings per share are forecast to grow into 2023. We believe that sentiment towards Chinese stocks may have dipped beyond that justified by company fundamentals and this could be an attractive time to take long-term exposure, although near-term risks remain. If the Qualified Foreign Institutional Investor Licence is acquired soon and the team identifies suitable opportunities, we believe it could be well-timed for the team to begin using the gearing facilities.

Bull

  • Locally-based management team with extensive experience of Chinese equities
  • Aligned to long-term structural drivers of economic growth in China
  • High-conviction portfolio, not a benchmark-hugger

Bear

  • High single country risk, including political and regulatory risk
  • Chinese markets are highly volatile
  • Trust may use gearing which could amplify losses
Continue to Portfolio

Fund History

25 Aug 2023 Is China a value play?
Almost all Asia managers are underweight the world’s second-largest economy...
23 Aug 2023 Halfway there…investing on a prayer
We provide an update on our picks for 2023 and see which analysts' prayers are being answered…
03 Jul 2023 Fund Analysis
Chinese growth equities look cheap, yet are delivering strong earnings growth…
30 Jun 2023 High end China
Several managers are investing in higher-end consumer growth in the world’s second-largest economy…
29 Mar 2023 Podcast: Trust Issues #13 - Finding the best growth stocks in China, with ACIC Manager Elizabeth Kwik
It's been an interesting start to life for the trust, which was launched in late 2021...
25 Jan 2023 The toad to recovery
Two of our analysts debate the outlook for China in 2023…
04 Jan 2023 Here we go again
We review our ‘top picks’ for what was a wild year and place our bets for the year ahead – which doesn’t look much calmer…
09 Dec 2022 Fund Analysis
Unjustifiably poor sentiment and a change in the lockdown stance could be the spur for China and ACIC…
13 Jul 2022 Ready player one
We wonder where, if anywhere, should investors look for returns after a tumultuous first half of the year…
25 May 2022 Bull in a China shop
Chinese stocks are looking cheap, and we argue that now may be a good time to allocate more to China for the long-term...
04 May 2022 Fund Analysis
ACIC is a new strategy aligned to China’s long-term growth potential...
04 May 2022 Time to change the record
We ask whether equities can still offer meaningful diversification or whether investors need to turn to alternatives…
25 Mar 2022 Slides and Audio: abrdn China
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 16 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
View all

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