GREATER CHINA/
CHINA EQUITY
Three-year sector performance
SECTOR ANALYSIS
The China equity sector posted higher
returns than that of the Greater China
equity in US dollar terms over the threeyear period ending March 2016, but had
higher volatility. Top performers were
funds investing primarily in China A-shares,
which had a particularly strong run in the
first half of 2015. This was a time of rising
sentiment in mainland China, which drove
investors to borrow a record amount of
money to purchase stocks. Excluding the
top performing A-share focused funds,
there was no one particular style that
outperformed over the period. Moreover,
market movements were heavily driven by
sector rotations, i.e. growth stocks and smallcaps had a strong run in 2013, while in 2014
value stocks and large caps outperformed.
Making timely regional and sector calls and
good stock selection proved to be the key to
outperformance.
MARKET REVIEW
Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)
Three-year annualised return/volatility
The last three years, worries over China’s
economic slowdown and the possibility
of a hard landing have dampened market
sentiment. Various reforms and supportive
policies announced after the Third Plenum
of 2013, including the relaxation of the onechild policy and the Hong Kong-Shanghai
Stock Connect, drove the market. Greater
China equities have generally been on a
bumpy ride but still ended positively in 2013
and 2014. The market rally then came to an
abrupt end by mid-2015 as concerns over
China’s economic slowdown intensified,
triggering a snowball effect that forced
investors to engage in a series of market selloffs in order to repay their margin calls.
MARKET OUTLOOK
Greater China equities are currently trading
at a significant discount relative to the
developed markets. As China undergoes a
series of reforms to open up capital markets
and transitions to a more balanced economy,
the whole