For Tim Hughes, investment counsel at NGS Super, China’s rise is the most important change in the global economy since the industrial revolution – but the challenge for investors is working out how to profit from it. Investing directly in the Chinese A-Share market was one way to meet this challenge, Hughes said, which led NGS Super to appoint HSBC Asset Management and Bernstein Value Equities to invest an undisclosed sum of money in the market for the fund. NGS Super’s time horizon for investing in A-Shares was nothing less than three-to-five years, said Hughes, and the fund would have to accept the volatile nature of the market in the short-term and hope their managers can take advantage of it.

“The Chinese share market, overall, is the equal secondlargest in the world and is grossly underrepresented in the MSCI [World] Index because most of it’s not actually easily accessible to foreign investors,” Hughes said. “We couldn’t get exposure to all that growth without investing domestically in the China share market.” The surge of new money pouring into emerging markets has caused some investors to worry that valuations were becoming excessive. But was all of this capital moving into China? According to Hughes, no: less than 5 per cent of the China A-Share market was owned by foreign investors, with Chinese retail investors dominating the market. “The China A-share market is not well researched at all by foreign brokers,” Hughes said.

“It is fairly well researched by domestic brokers but their focus is very, very much short-term and trying to find the next top thing rather than focussing on the longer term value opportunities that are there. So in terms of focusing on what’s important to investors, the market is very under-researched.” Asia, excluding Japan, was a problem for investors due to its low weighting in the global equity benchmarks, according to Asian equities specialist Kerry Series. This did not allow investors to gain enough exposure to Asia if they had invested through global equity funds, said Series.

“So while the world is rebalancing to Asia and economies are rebalancing to Asia, I don’t think the investors have started,” he said. According to Hughes, investing directly into the Chinese A-Share market provided super funds with meaningful diversification because it exposed them to large sectors in the Chinese economy that weren’t accessible any other way. Now that China was beginning to move away from an export-oriented focus towards an economy more dependent on internal consumption, Hughes said opportunities would continue to emerge.

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