Outlook and Strategy Hong Kong China Funds

Transcription

1 Q 208 Outlook and Strategy Hong Kong China Funds

2 Investment Theme Mainland Stock Market Stabilises after Policy Impact Absorbed Mainland China s property sector rebounded as home prices stabilised. The recently announced acceleration of shanty town clearance programmes will help absorb inventory in 208. Market data also showed that home sales and new home starts recovered in November last year. Market fears about excessive central government policies to deleverage the economy have eased, with share prices in the banking industry regaining their momentum. Hong Kong Property Stocks Show Resilience against Rising Rates The Hong Kong Stock Exchange has proposed amending its listing rules to allow for: ) weighted voting rights structures, and 2) secondary listing in Hong Kong for innovative companies. The stock exchange will benefit if the looser rules attract more listings, increasing the variety of listed equity investments accessible to Hong Kong investors. In line with market expectation, the U.S. Federal Reserve (Fed) raised the benchmark interest rate by 25 basis points in December 207. The Hong Kong Monetary Authority subsequently raised its benchmark lending rate by 25 basis points in the same month. Despite the rate hikes, property stocks in Hong Kong remained firm and outperformed the market in December. Hong Kong Dollar Expected to Remain Under Pressure Hong Kong dollar bonds recorded positive returns in 207, but slightly lagged behind other Asian local bond markets due to rising local yields and a weaker Hong Kong dollar versus the U.S. dollar. The Hong Kong dollar is expected to remain under pressure in the medium term due to the interest rate gap. Hong Kong dollar government bond yields could continue to trend higher as a result of further interest rate hikes by the Fed. Outlook and Strategy on Hong Kong China Funds

3 BEA Union Investment China Phoenix Fund as at 29 December 207 BEA Union Investment China Phoenix Fund seeks long-term capital appreciation through investing in listed securities of companies that are expected to benefit from or have exposure to the economic growth of Mainland China. The fund s investments are concentrated in China. This may result in greater volatility than portfolios which comprise broad-based global investments. The fund invests in China shares (including China A-, B- and H-Shares), Renminbi denominated corporate and government bonds, securities investment fund and warrants listed on the China stock exchanges and may be subject to withholding and other taxes imposed in China. Direct exposure to China A-Shares can be achieved via the Stock Connects, which is subject to different risks, including quota limitations, clearing and settlement risk. Investing in China involves a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity and regulatory risks. In terms of currency hedged class units, adverse exchange rate fluctuations between the base currency of the fund and the class currency of the currency hedged class units may result in a decrease in return and/or loss of capital for unitholders. Over-hedged or under-hedged positions may arise and there can be no assurance that these currency hedged class units will be hedged at all times or that the manager will be successful in employing the hedge. Investors may invest in RMB (Hedged) units. It should be noted that the RMB is currently not a freely convertible currency as it is subject to foreign exchange control policies of the Chinese government. There is also no assurance that the RMB will not be subject to devaluation. Any devaluation of the RMB could adversely affect the value of investors investments. There is no guarantee that the hedging strategy will be effective and investors may still be subject to the RMB currency exchange risk. The fund may enter into futures contracts for hedging and investment purposes. Given the leverage effect embedded in futures contracts, the fund may be exposed to significant losses. Investors should not make an investment decision based solely on this material. Fund Performance % YTD Year 3 Year Since Launch Class A USD ^ Class A HKD ^ Class A RMB (Hedged) ^ N/A Source: Lipper, as at 29 December 207. Class A USD and Class A HKD were launched on 30 April 203. Class A RMB (Hedged) was launched on 2 December 204. Performance is calculated in the respective fund currency on a NAV to NAV basis. Gross income is re-invested. HKD/USD based investors are exposed to foreign exchange fluctuations. Past performance is not indicative of future performance. ^Since launch till 3 December of the same year. Portfolio Recap & Strategy Market Review The fund increased its overweight position in the consumer discretionary sector to capitalise on China s long-term consumption upgrade story, and also increased its overweight in the energy sector in the expectation that rising oil prices will lead to higher earnings. The fund trimmed its exposure in the tech hardware sector to realise profits and out of concern over near-term headwinds. Major Index YTD Year MSCI China Index 52.3% 52.3% Source: Bloomberg, as at 29 December 207 Key Economic Indicators GDP (YoY) CPI (YoY) PMI Exports (YoY) Dec 207 Sep 207 Dec 207 Nov 207 Dec 207 Nov 207 Dec 207 Nov 207 China 6.8% 6.8%.8%.7% %.5% Source: Bloomberg, as at respective month end. Market Commentary Mainland China s real estate sector rebounded as home prices have stabilised and the announcement of accelerated shanty town clearance programmes is expected to help absorb inventory in 208. Data also indicates a rebound of home sales and new home starts in November. The Stock Exchange of Hong Kong ( SEHK ) has proposed to amend its listing rules to allow: ) dual class share structures; and 2) biotech companies to list before they have made consistent profits. These looser rules stand to benefit the SEHK by attracting more listings, and could increase the variety of listed equity investments accessible to Hong Kong investors. Outlook and Strategy on Hong Kong China Funds 2

4 BEA Union Investment Hong Kong Growth Fund as at 29 December 207 BEA Union Investment Hong Kong Growth Fund provides investors with long-term capital growth in HK dollar terms through investing in a diversified portfolio consisting primarily of securities of companies, either listed or with operations or interests principally in Hong Kong. The fund invests in a single market which may be subject to higher concentration risk than funds which invest in a number of different markets. Investors should not make an investment decision based solely on this material. Fund Performance % YTD Year 3 Years 5 Years Since Launch Class R Source: Lipper, as at at 29 December 207. Class R was launched on 0 December Performance is calculated in HKD on a NAV to NAV basis. Gross income is re-invested. Past performance is not indicative of future performance. Portfolio Recap & Strategy Market Review The fund increased its overweight position in the consumer discretionary sector to capitalise on China s long-term consumption upgrade story, and also increased its overweight in the energy sector in the expectation that rising oil prices will lead to higher earnings. The fund also increased its overweight in the Hong Kong real estate sector, as fundamentals still appear attractive. Major Index YTD Year Hang Seng China Enterprises Index (HSCEI) 24.6% 24.6% Hang Seng Index (HSI) 36.0% 36.0% Source: Bloomberg, as at 29 December 207 Key Economic Indicators CPI (YoY) Retail Sales (YoY) Unemployment Rate (YoY) Nov 207 Oct 207 Nov 207 Oct 207 Dec 207 Nov 207 China.7%.9% 0.2% 0.0% 4.0%* 4.0%* Hong Kong.6%.5% 7.5% 3.9% 2.9% 3.0% Source: Bloomberg, as at respective month end. * The Chinese unemployment rate in China is only available on a quarterly basis and the latest figure is as at 29 September 207; the previous figure is as at 30 June 207. Market Commentary The Stock Exchange of Hong Kong ( SEHK ) has proposed to amend its listing rules to allow: ) dual class share structures; and 2) biotech companies to list before they have made consistent profits. These looser rules stand to benefit the SEHK by attracting more listings, and could increase the variety of listed equity investments accessible to Hong Kong investors. Despite the U.S. Federal Reserve continuing to raise interest rates, Hong Kong s real estate sector remained firm and outperformed the market in December. 3 Outlook and Strategy on Hong Kong China Funds

5 BEA Union Investment China High Yield Income Fund ( CHY ) as at 29 December 207 BEA Union Investment China High Yield Income Fund seeks to achieve medium to long term capital growth and regular income by primarily investing in high yield debt securities that are issued or guaranteed by entities which are incorporated in China or have significant operations in or assets in, or derive significant portion of revenue or profits from China. The fund may invest significantly in below investment grade or non-rated debt securities, including high yield bonds, which are generally subject to lower liquidity, higher volatility and greater risk of loss of principal and interest than higher rated securities. The fund s investments are concentrated in China. The value of the fund may be more volatile than that of a fund having a more diverse portfolio of investments. The manager may at its discretion make distributions from income and/or capital in respect of the distributing classes of the fund. Investors should note that the distributions paid out of capital amount to a return or withdrawal of part of the unitholder s original investment or from any capital gains attributable to that original investment. Such distribution may result in an immediate reduction of the net asset value per unit. In terms of currency hedged class units, adverse exchange rate fluctuations between the base currency of the fund and the class currency of the currency hedged class units may result in a decrease in return and/or loss of capital for unitholders. Over-hedged or under-hedged positions may arise and there can be no assurance that these currency hedged class units will be hedged at all times or that the manager will be successful in employing the hedge. RMB is currently not freely convertible and is subject to foreign exchange control policies of the Chinese government. Non-RMB based (e.g. Hong Kong) investors are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the investors base currencies (for example HKD) will not depreciate. Any depreciation of RMB would adversely affect the value of investor s investment in the fund. The fund may use certain financial derivative instruments for hedging and investment purposes which may not achieve the intended purpose and may result in significant losses. Investors should not make an investment decision based solely on this material. Fund Performance % YTD Year Since Launch A USD (Dis) ^ A HKD (Dis) ^ A AUD Hgd (Dis) # ^ A RMB Hgd (Dis) # ^ # Hgd = Hedged Source: Lipper, as at 29 December 207. All classes were launched on 22 April 206. Performance is calculated in the respective class of denominated currencies on a NAV to NAV basis. Gross income is re-invested. HKD/USD based investors are exposed to foreign exchange fluctuations. Past performance is not indicative of future performance. ^Since launch till 3 December of the same year. Portfolio Recap & Strategy Market Review The fund s overall strategy remained fairly defensive approaching the end of 207. It continued to trim exposures in higher beta names and long-dated bonds, and switched into more defensive shortdated Chinese property bonds. The fund still held some positions in CNY/CNH-denominated bonds. Indicative Yield Latest Month Previous Month Yield of Bank of America Merrill Lynch Asian Dollar High Yield Corporate China Issuers Index 6.7% 6.6% Source: Bloomberg. Latest month: as at 29 December 207; previous month: as at 30 November 207. Market Commentary Source: Bloomberg, as at respective month end. Key Economic Indicators GDP (YoY) CPI (YoY) PMI Sep 207 Jun 207 Nov 207 Oct 207 Dec 207 Nov 207 China 6.8% 6.9%.7%.9% Hong Kong 3.6% 3.9%.6%.5% In line with market expectation, the U.S. Federal Reserve ( Fed ) raised its benchmark interest rate by 25 bps in its December meeting, the third rate hike of 207. As the market had largely priced in three rate hikes for the year, U.S. 0-year Treasuries remained range-bound throughout 207. Despite the Fed s rate hikes, China s high-yield bond market continued to perform well overall last year as a result of strong liquidity flows and the improving fundamentals of individual credits. Chinese high-yield industrials performed slightly better than Chinese high-yield property bonds; this was primarily driven by an increase in Chinese property company bond issuances during 207. Looking ahead, we are still positive on China s high-yield bond market. Although offshore bond supply is expected to increase in 208 due to rising financing costs in the onshore market, we expect China s high-yield dollar bond market to remain resilient due to ) consistent inflows into the Chinese bond market in search of higher yields, 2) anchor demand by Chinese investors, and 3) the improving credit metrics of individual credits. Outlook and Strategy on Hong Kong China Funds 4

6 BEA Union Investment Hong Kong Dollar (HK$) Bond Fund as at 29 December 207 BEA Union Investment Hong Kong Dollar (HK$) Bond Fund provides investors with long term capital growth in HK dollar terms through investing in a portfolio consisting primarily of HK dollar denominated interest bearing securities. The fund invests in a single market which may be subject to higher concentration risk than funds which invest in a number of different markets. Investors should not make an investment decision based solely on this material. Fund Performance Morningstar Overall Rating Portfolio Recap & Strategy Market Review % YTD Year 3 Years 5 Years Since Launch Class R Source: Lipper, as at 29 December 207. Class R was launched on 2 June Performance is calculated in HKD on a NAV to NAV basis. Gross income is re-invested. Past performance is not indicative of future performance. The fund portfolio duration has increased its underweight position on the U.S. tax plan passage and expects further rate hikes in 208. The fund is continuing to increase its weighting in corporate and quasi-sovereign bonds while withdrawing from some government bonds in order to boost yields. We have continued to maintain our USD bond weighting, as we expect HKD rates to underperform USD rates in the medium term. The fund continues to look for high-quality corporate bonds to enhance yield carry. Indicative Deposit Rate Latest Month Previous Month HKD Deposit 3-Month 0.0% 0.0% Source: Bloomberg. Latest month: as at 29 December 207; previous month: as at 30 November 207. Key Economic Indicators GDP (YoY) CPI (YoY) Exports (YoY) Sep 207 Jun 207 Nov 207 Oct 207 Nov 207 Oct 207 Hong Kong 3.6% 3.9%.6%.5% 7.8% 6.7% Source: Bloomberg, as at respective month end. Market Commentary In line with market expectation, the U.S. Federal Reserve raised the benchmark rate by 25 bps in December. In response, the Hong Kong Monetary Authority ( HKMA ) also raised its benchmark lending rate by 25 bps. To align with the Fed s interest rate normalisation policy, the HKMA has raised its benchmark rate three times this year. The HKMA also issued exchange bills to absorb some excessive liquidity in the banking system. HKD bonds recorded positive returns in 207, but slightly lagged behind other Asian local bond markets due to rising local yields and a weaker Hong Kong dollar versus the U.S. dollar. We expect the Hong Kong dollar to remain under pressure in the medium term due to the interest rate gap and because HKD government yields could continue to trend higher as a result of further interest rate hikes by the Fed. Source: 207 Morningstar. All Rights Reserved. Data as of 29 December 207. The rating is for Class R. 5 Outlook and Strategy on Hong Kong China Funds

7 Fund Details BEA Union Investment China Phoenix Fund (As at 29 December 207) Unit Class Class A HKD A RMB (Hedged) Class A USD Launch Date 30 April Dec April 203 Minimum Investment Amount HK$0,000 US$2,000 or equivalent US$2,000 ISIN HK HK HK Bloomberg BEACPAH HK BEACPAC HK BEACPAU HK Base Currency US$ Management Fee.75% p.a. Preliminary Charge Up to 5.00% Realisation Charge Currently waived Dealing Frequency Daily (HK business days) NAV per Unit HK$5.42 RMB8.83 US$.47 Fund Size US$4.4 million BEA Union Investment Hong Kong Growth Fund (As at 29 December 207) Unit Class Class R Launch Date 0 Dec 2004 Minimum Investment Amount ISIN Bloomberg Base Currency Management Fee HK$0,000 HK BEACHKG HK HK$.50% p.a. Preliminary Charge Up to 5.00% Realisation Charge Dealing Frequency Currently waived Daily (HK business days) NAV per Unit HK$ Fund Size HK$3,258million Outlook and Strategy on Hong Kong China Funds 6

8 Fund Details BEA Union Investment China High Yield Income Fund (As at 29 December 207) Unit Class A USD (Dis) A HKD (Dis) A AUD Hdg (Dis) # A RMB Hgd (Dis) # Launch Date 22 April 206 Minimum Investment Amount US$2,000 HK$0,000 US$2,000 or equivalent US$2,000 or equivalent Dividend Frequency Record Date Ex-Dividend Date Monthly (aims to provide a monthly dividend, dividend is not guaranteed and distributions may be paid out of income and/or capital 2 ) 4 th day of every month One business day after Record Date ISIN HK HK HK HK Bloomberg BEACYAU HK BEACYAH HK BEACYAA HK BEACYAR HK Base Currency Management Fee USD.20% p.a. Preliminary Charge Up to 5.00% Realisation Charge Dealing Frequency Currently waived Daily (HK business days) NAV per Unit US$0.49 HK$05.79 AU$0.24 RMB Fund Size US$52 million BEA Union Investment Hong Kong Dollar (HK$) Bond Fund (As at 29 December 207) Unit Class Class R Launch Date 2 June 2008 Minimum Investment Amount ISIN Bloomberg Base Currency Management Fee HK$0,000 HK BEACAPI HK Investments in the fund(s) are subject to investment risks, including the possible loss of the principal amount invested. For full details and risk factors of the fund(s), please refer to the explanatory memorandum of the fund(s). Investors should also read the explanatory memorandum of the fund(s) for detailed information prior to any subscription. The information contained herein is only a brief introduction to the fund(s). Investors should be aware that the price of units may go down as well as up as the investments of the fund(s) are subject to market fluctuations and to the risks inherent in all investments. Past performance is not indicative of future performance. The information contained in this document is based upon information which BEA Union Investment Management Limited considers reliable and is provided on an as is basis. The fund(s) have been authorized by the Securities and Futures Commission ( SFC ) in Hong Kong. SFC authorisation is not a recommendation or endorsement of a scheme nor does it guarantee the commercial merits of a scheme or its performance. It does not mean the scheme is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. This material and website have not been reviewed by the SFC in Hong Kong. Issuer: BEA Union Investment Management Limited HK$ 0.75% p.a. Preliminary Charge Up to 5.00% Realisation Charge Dealing Frequency NAV per Unit Fund Size # Hgd = Hedged If such day is not a business day, the record date will be the immediately preceding business day. Currently waived Daily (HK business days) HK$22.9 HK$,238million 2 Dividend only applies to distributing classes and is not guaranteed. The manager may at its discretion make distributions from income and/or capital in respect of the distributing classes of the fund. Investors should note that the distributions paid out of capital amount to a return or withdrawal of part of the unitholder s original investment or from any capital gains attributable to that original investment. Such distribution may result in an immediate reduction of the net asset value per unit. If you would like to subscribe other marketing materials of the funds, please feel free to register as a member of BEA Union Investment at this link: Retail Hotline: (852)