China’s economy is experiencing challenges amid tough geopolitics and the ongoing Covid-19 situation. But it is UOB Asset Management (UOBAM)’s view that with the country’s huge consumer market, its key role in the supply chain, and advances in production and technology, China continues to be an important market for investors looking for reliable long-term opportunities.
It is also important to achieve time in the market by focusing on companies and stocks that are aligned with the goals of the Chinese government. There is also good hope that a positive swing could come from the reopening of the economy from Covid-19 in 2023.
Launched on 21 October 2022, the UOBAM Ping An ChiNext Exchange-Traded Fund (ETF) offers investors in Singapore access to the Chinese market through the ChiNext Index, covering a diversified portfolio of fast-growing and innovative companies across multiple sectors, including a current spread in the industrial (41.8%), healthcare (23.4%), information technology (14.3%) and consumer staples (5.1%) sectors1.
Investing in China is not always easy but could yield returns given the long-term opportunities. UOBAM’s Deputy Chief Marketing Officer, Rachel Ong, shares UOBAM’s assessment of the outlook for the Chinese market, the key trends and risks, and how the UOBAM Ping An ChiNext ETF could help investors navigate the opportunities and complexities of the Chinese market.
The UOBAM Ping An ChiNext ETF allows investors access to the ChiNext Index, the benchmark and flagship index of the ChiNext market under the Shenzhen Stock Exchange (SZSE). What are the key features of the fund?
The ChiNext Index is a selection of 100 fast-growing and innovative Chinese companies out of a universe of more than 1,100 companies listed on the ChiNext market. By replicating as closely as possible the performance of the ChiNext Index, the UOBAM Ping An ChiNext ETF offers investors a way to gain exposure to these 100 companies.
In addition, because the ETF is listed on the Singapore Exchange (SGX), investors can trade units at any time with no minimum board lot size. Singapore residents can invest with cash and/or their Supplementary Retirement Scheme (SRS) account.
The underlying Ping An ChiNext ETF also enjoys a lower management fee compared with the typical China mutual funds due to its low turnover and expenses, as it only rebalances twice a year. There is also a fast entry rule to include newly listed stock if its average daily market capitalisation rank is within the top ten of the Shenzhen Market during its first five trading days. The ad hoc addition will be included into the index on the stock’s 15th trading day.
What are the reasons for launching the UOBAM Ping An ChiNext ETF now, given the current situation of the pandemic, China’s zero-Covid policy and the intensifying China-US competition?
UOBAM, along with our joint venture partner, Ping An Fund Management Company, are the first fund managers to take advantage of the memorandum of understanding (MOU) signed in December 2021 between SGX and SZSE2. The MOU establishes an ETF link for ETFs listed on one exchange to also be listed on the other, unlocking more trading opportunities for investors to meet their portfolio diversification needs.
China is the world’s second largest economy and a global leader in many new technologies. The country’s estimated 700 million middle-income population3 is also the largest in the world. This consumer market helps power many technological advancements, including 5G/6G telecommunication, electric and autonomous driving vehicles, artificial intelligence and renewable energy. The 20th National Congress of the Chinese Communist Party also reaffirmed China’s commitment of “rejuvenation through science and technology”.
We believe that Chinese equities will benefit from these structural tailwinds and therefore are an important component of an investor’s long-term portfolio. While China’s economic growth over the short term appears to be slowing due to Covid-19 lockdowns and problems in the property sector, these are unlikely to persist. In fact, recent measures announced over the past month have already helped to lift prices. Hence, it is more important to achieve time in the market, rather than trying to time the market.
The ChiNext Index is diversified across sectors, but industrial, healthcare and IT sectors take a majority of the weight. How is it different from investing in the Shanghai Stock Exchange STAR Market, which also focuses on growing sci-tech innovation companies?
In terms of similarities, both the Shanghai Stock Exchange’s STAR Market and the SZSE’s ChiNext market aim to offer an alternative listing venue for emerging companies primarily within the new economy sectors. However, the STAR Market is seen to be focused on “hard” tech sectors such as the high-end equipment, semiconductors and materials sectors, whereas the ChiNext market does not specify sector preferences.
The markets’ indices — the STAR 50 and ChiNext indices respectively — are distinct in that the STAR 50 Index is made up of 50 STAR Market stocks whereas the ChiNext Index comprises 100 ChiNext market stocks, selected based on the indices’ respective size and liquidity criteria. The sector composition of the two indices also differs. For example, as of September 2022, semiconductor companies and new energy companies each made up about a third of the STAR 50 Index. In contrast, a fifth of the ChiNext Index comprises companies in the new healthcare sector.
We believe that the ChiNext market has a strong future given Chinese President Xi Jinping’s commitment to building China’s technological capabilities in his third term in office. There is also a push towards self-sufficiency, so we can expect policy support across the entire tech supply chain.
What are some of the notable companies of the ChiNext Index? What are the drivers and trends for these companies and their sectors? What are the risks that investors should be aware of?
As of 30 September 2022, the top ten companies within the ChiNext Index include four industrial companies, the most high profile of which is Contemporary Amperex Technology Company Limited (CATL), a global leader in lithium-ion battery development and manufacturing. There are also four healthcare companies including Shenzhen Mindray Bio-Medical Electronics, a multinational company focused on medical equipment manufacturing for life support, imaging, diagnostics and more. East Money Information, another company on the list, is a stock and financial information provider. Finally, Wens Foodstuff Group is engaged in the farming of livestock, the manufacture of modern agriculture equipment and the provision of biopharmaceutical services.
Although wide-ranging, each of these companies focuses on innovation and newly emerging products and services. They tend to cater to current themes such as new forms of food production, the transition away from carbon-intensive energy and new healthcare techniques such as drug discoveries and artificial intelligence-based medical devices.
Nonetheless, ChiNext-listed companies are fast-growing but relatively young. The companies’ stocks tend to be more volatile compared with those listed on the broader Shenzhen or Shanghai main boards as they are engaged in new economy sectors. In the year to date, ChiNext Index is down by more than 35%, compared with the Shenzhen Composite Index’s 20% decline.
We have seen how the market fluctuates in recent times. What are the projections for the future of China’s market over the short-to-medium and long term? How will UOBAM mitigate the negative impact of these movements and assure potential investors?
We believe that the ChiNext market has a strong future given Chinese President Xi Jinping’s commitment to building China’s technological capabilities in his third term in office. There is also a push towards self-sufficiency, so we can expect policy support across the entire tech supply chain. Although this does not preclude extended periods of volatility, we look forward to Chinese tech-focused equity sectors delivering positive returns over the next few years.
Notably, an investor’s international portfolio can benefit from the diversified offering of the ChiNext Index, as it has a relatively low correlation with other major international indices — it has a correlation of between 0.2% and 0.3% with Singapore’s Straits Times Index, the US’s S&P500 and Europe’s Euro STOXX 50.
Those looking to invest in the ChiNext Index should be prepared to hold for the longer term, even through bouts of downturns. Rather than timing the market via a one-time capital outlay, investors should aim to enter the market at regular intervals to take advantage of dollar cost averaging. Percentage allocation to this index will depend on the investor’s risk profile, but as a guide, China comprises about 25% of the MSCI Emerging Market Index.
The UOBAM Ping An ChiNext ETF invests all, or substantially all of the fund’s assets into Ping An ChiNext ETF which is managed by China’s Ping An Fund Management Company. Ping An Fund Management Company was established in 2011. How has its performance fared so far? And why did UOBAM choose to feed into the Ping An ChiNext ETF?
The opening of China’s capital markets has attracted greater attention from foreign investors to China’s domestic public funds and we are proud to cater to this demand by being the first ETF issuer to participate in the SZSE-SGX ETF link under the SGX MOU with SZSE.
The SZSE-SGX ETF link presents a channel for investors to tap into a market with growth prospects. Through this first-of-its-kind ETF, investors can access innovative China-based companies in high-growth sectors such as biotechnology and clean energy, managed by a well-established Chinese fund manager with a deep local presence.
This listing also marks a milestone in our partnership with our China-based joint venture partner Ping An Fund Management and a culmination of a strong partnership between our two organisations.
Singapore investors can look forward to building a solid and diversified portfolio of promising sectors and companies in China, taking advantage of the long-term structural trends, with the timely UOBAM Ping An ChiNext ETF.
To learn more about the ETF, please visit here.
1Shenzhen Securities Information Co Ltd, as at 31 October 2022. For more information please visit here.
2SGX and SZSE signed an MOU on 28 December 2021 to establish an ETF link, offering investors on both exchanges a wider range of investment options. For more information, please visit here.
3(2021, December 8). China’s expanding middle class is starting to look a lot like the US’, but it’s not a good thing. SCMP. Retrieved December 1, 2022, from https://www.scmp.com/economy/china-economy/article/3158753/chinas-expanding-middle-class-starting-look-lot-us-its-not
Important notes and disclaimers
This document is for general information only. It does not constitute an offer or solicitation to deal in units (“Units”) in the UOBAM Ping An ChiNext ETF (the “Fund”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information contained in this document, including any data, projections and underlying assumptions, are based upon certain assumptions, management forecasts and analysis of information available and reflects prevailing conditions and the views of UOB Asset Management Ltd (“UOBAM”) as of the date of this document, all of which are subject to change at any time without notice. In preparing this document, UOBAM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by UOBAM. While the information provided herein is believed to be reliable, UOBAM makes no representation or warranty whether express or implied, and accepts no responsibility or liability for its completeness or accuracy. Nothing in this document shall, under any circumstances constitute a continuing representation or give rise to any implication that there has not been or there will not be any change affecting the Fund. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOBAM and any past performance or prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise, and is likely to have high volatility due to the investment policies and/or portfolio management techniques employed by the Fund. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund's prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should note that the Fund is not like a conventional unit trust in that an investor cannot redeem his Units directly with UOBAM and can only do so through the participating dealers, either directly or through a stockbroker if his redemption amount satisfies a prescribed minimum that will be comparatively larger than that required for redemptions of units in a conventional unit trust. The list of participating dealers can be found at www.uobam.com.sg.
An investor may therefore only be able to realise the value of his Units by selling the Units on the Singapore Exchange Limited (“SGX”). Investors should also note that any listing and quotation of Units on the SGX does not guarantee a liquid market for the Units. An investment in unit trusts is subject to investment risks and foreign exchange risks, including the possible loss of the principal amount invested. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before deciding whether to subscribe for or purchase any Units. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. The Fund is not in any way sponsored, endorsed, sold or promoted by and/or its affiliates and SGX and/or its affiliates make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the ChiNext Index (the “Index”) and/or the figure at which the Index stands at any particular time on any particular day or otherwise, The Index is administered, calculated and published by SGX. SGX shall not be liable (whether in negligence or otherwise) to any person for any error in the Fund and the Index and shall not be under any obligation to advise any person of any error therein. “SGX” is a trademark of SGX and is used by the Index under license. All intellectual property rights in the Index vest in SGX. Please note that, where relevant, the general disclaimers and jurisdiction specific disclaimers found on SGX’s website at http://www.sgx.com/terms-use are also incorporated into and applicable to this document/material.
This publication has not been reviewed by the Monetary Authority of Singapore.
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