abrdn has today announced the launch of a China Next Generation Fund, a small and mid cap (‘SMID’) fund primarily investing in the bottom 30% of the Chinese equity market, both onshore and offshore. China is the world’s second largest equity market and with 88% of China’s companies falling into the SMID market, this is an exciting extension of abrdn’s existing Chinese equities franchise.
The Fund will provide investors with access to opportunities in innovation including the Shanghai Star Market, the science and technology focused equities market established in 2019.
Investing in 30-60 stocks, the Fund will have a strong tilt towards new economy and innovation, including in the below four key investment themes:
Aspiration - rising affluence is leading to fast growth in premium consumption in areas including cosmetics and luxury car dealerships. It is thought that between 2020-2030, the number of households in China with annual incomes above USD22k is expected to grow by 70%.
Green - policy makers globally are committing to a greener and lower carbon world. China dominates the green tech ecosystem with over 90% of global solar production capacity and 75% of battery. Holdings in the Fund will include EV charging station makers.
Health - rising disposable incomes are driving demand for healthcare products and services. The median age in China is 38, and this is set to rise to 46 by 2050. The demographic problem and rising wealth mean healthcare is set to benefit. We see big opportunities in high quality healthcare service providers focused on clinical research and quality control.
Technology - China currently imports over USD300bn of semi-conductors each year. Technology self-reliance is a key focus for policy-makers in China and this represents a huge opportunity for investors. On-shoring of technology and import substitution are also strong trends in areas of automation and robotics.
Nicholas Yeo, Head of China Equities, abrdn said: “SMIDs are the economic backbone of China, offering attractive valuations and significant alpha potential. They hold lower regulatory risk as attention and scrutiny has mainly been focused on large companies. Smaller companies, meanwhile, are benefitting from policy support aimed at promoting more competition and innovation. Furthermore, coverage of SMIDs by brokers tends to be relatively thin, providing an information edge for active investors who carry out their own due diligence and research - it’s an exciting time to open up these diverse opportunities to investors. abrdn is proud to be one the first asset managers to have developed a dedicated China SMID capability.”
abrdn has been investing in China for 30 years and the Fund will be managed by the 14 strong China Equities team, lead by Nicholas Yeo. With an A+ ESG rating from UN PRI and AAA ESG rating by MSCI, the team is based in Hong Kong and Shanghai and is supported by the wider Asian and Global Emerging Markets equities teams on company research.
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Notes to editors
About the Fund
The Fund aims to achieve a combination of growth and income by investing in small and mid-capitalisation companies in China. The Fund aims to outperform the MSCI China All Shares Smid Cap Index (USD) benchmark before charges.
The Fund invests in equity and equity related securities. These are sensitive to variations in the stock markets which can be volatile and change substantially in short periods of time. 2 A concentrated portfolio may be more volatile and less liquid than a more broadly diversified one. The fund's investments are concentrated in a particular country or sector. 2 The fund invests in Chinese equities. Investing in China involves a greater risk of loss than investing in more developed markets due to, among other factors, greater government intervention, tax, economic, foreign exchange, liquidity and regulatory risks. 2 The shares of small and mid-cap companies may be less liquid and more volatile than those of larger companies. 2 Investing in China A shares involves special considerations and risks, including greater price volatility, a less developed regulatory and legal framework, exchange rate risk/controls, settlement, tax, quota, liquidity and regulatory risks. 2 The fund may invest in companies with Variable Interest Entity (VIE) structures in order to gain exposure to industries with foreign ownership restrictions. There is a risk that investments in these structures may be adversely affected by changes in the legal and regulatory framework. 2 The use of derivatives carries the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions, such as a failure amongst market participants. The use of derivatives may result in the fund being leveraged (where market exposure and thus the potential for loss by the fund exceeds the amount it has invested) and in these market conditions the effect of leverage will be to magnify losses.
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