Quarterly Assessment (3Q16)
The stage is set for demand in 2017
Greater China AUM bounced back in the third quarter, but capital appreciation veiled net organic outflows. A-share inclusion is in focus after Vanguard completed the first stage of allocating A-shares to its USD60bn Emerging Markets ETF; and we expect rival EM managers to follow suit. We analyze the likely effect of A-share inclusion on performance and fund fees. Following on from our second quarter report, we take a further look into smart beta and expect these strategies will benefit greatly from the launch of the Shenzhen Connect, while also highlighting the managers most likely to move first. Despite this segment’s small size in Greater China, there are five distinct strategies and only one manager can claim any sort of market lead.
Z-Ben Advisors has developed a new index that measures investor demand for inbound China and Hong Kong funds, well aware that distinguishing trends in investor demand is easier said than done in the Greater China fund industry. It’s not unusual for investor demand to lag fund performance. However, this lag has been prolonged by RMB volatility expectations. As and when this subsides, Chinese regulators have provided increasingly open and liberal inbound access channels. Having the right products to meet demand continues to be key.
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