The Chinese equity market has rallied since late September. Over a two-week period, the market became one of the best performing markets year to date. So far, the rally has been mostly driven by retail investors, ETFs, while institutional investors are still sitting on the sideline. In fact, most active funds still have an underweight to China.
We believe the Chinese equity market still has strong valuation support. The China Equity Strategy has experienced strong relative performance over the past two years1. In the recent rally, some of our high-yield and high-quality stocks have underperformed the high-beta, lower-quality stocks. So, we have taken the opportunity to shift some of the positions into the more high-quality underperformers. We believe Chinese equities still have strong valuation support, and that there are still many stock selection opportunities for investors.
