Acadian targets A-share market

Global quantitative investment firm Acadian Asset Management LLC has announced its China A-share strategy, reinforcing a view that overseas investors are showing greater interest in the Chinese stock market.

The market has become more accessible to them, thanks to the trading links between the two major exchanges in the Chinese mainland and Hong Kong built up in 2014 and 2016 respectively.

In a recent telephone interview with Bloomberg, Asha Mehta, a portfolio manager who oversees the company's investments in emerging markets, said Acadian is planning to buy into China's stock market. As of Jan 31, the firm had assets worth over $103 billion under management.

Access to the A-share market through the RMB Qualified Foreign Institutional Investor program as well as the Shanghai and Shenzhen Stock Connect mechanisms with Hong Kong, has attracted foreign investors. It has helped the Boston-headquartered Acadian firm to expand its global reach, said Mehta, adding the China market is "very compelling".

Mehta said the investment principle at Acadian is to look at market cap differentiation in terms of large-cap, mid-cap and small-cap stocks. As the firm has outgrown the small-cap category, the consumer segment in China may be Acadian's next possible focus area.

Consumer stocks including Jiangxi Wannianqing Cement Co, Harbin Medisan Pharmaceutical Co, and Bank of Jiangsu Co are the major targets for Acadian. These companies will benefit from rapid industrial growth and attractive equity valuations, Mehta said.

Jiangxi Wannianqing has shown strong growth outlook, coupled with consistent cash flows and discounted valuations, she said. As a supplier to the rapidly expanding healthcare industry in China, Harbin Medisan has also demonstrated solid assets and cash flow quality which are enough to support its growth strategy. As for Bank of Jiangsu, Acadian holds a favorable outlook for the banking sector.

"The cornerstone of China's strategy has been growth and economic liberalization," she said. During China's National People's Congress which opened on March 5, the central government underscored a continued adherence to GDP growth targets.

The GDP growth target set for this year remains unchanged from 2017 at about 6.5 percent. That said, the 2018 macroeconomic targets announced at the Congress indicate broad stability in policy setting, according to global credit rating firm Fitch Ratings.

While China's A-share market is scheduled to be included in the MSCI emerging markets index in June, Mehta said it is already a "fascinating development" although it will only represent a modest weight this year. But over time, China's weight could increase to up to 43 percent of overall index weight, assuming no more privatizations.

"China has seen developments over the past few years that are very beneficial for investors. We see potentially further positive developments ahead," she said.