As investors look for opportunities in a volatile market environment, some may turn to Chinese equities and country-specific exchange traded funds.
JPMorgan Asset Management’s Gabriela Santos argued that portfolio managers will be hard-pressed to outperform in increasingly volatile markets and expressed belief that investing in China could give them an edge, Bloomberg reports.
“Volatility is going to stay higher for longer,” Santos, JPMorgan Asset Management’s global market strategist, told Bloomberg TV’s Surveillance. “China is a really important piece of this puzzle because you can add alpha in Chinese markets. We project for China to have the highest returns over the next decade, double for Chinese A shares versus the U.S. and double for Chinese local-currency government bonds versus U.S. Treasuries.”
Santos contended that selecting financial assets that will outperform benchmarks will be the new norm for strategists and that there could be a shift away from achieving beta toward what she called “the dawn of alpha.”
“For the last 15 years or so, it was all just about being invested and riding returns of indices,” Santos said. “We only project beta returns going forward of 4.3% annualized. So we got to work harder to generate the same returns as the last cycle. And that’s where alpha comes in.”
Consequently, China could help get an investor to alpha. “There’s a lot of improvement that can happen on returns by adding Chinese assets,” Santos added. “And you also get a diversification kicker from those markets. They really beat to their own drum. You’re seeing that in action this year.”
Investors interested in diversified China exposure can look to something like the JPMorgan ActiveBuilders Emerging Markets Equity ETF (JEMA), which includes a broad emerging market focus with a hefty 30.5% tilt toward China.
Additionally, investors have a number of options to access Chinese equity markets through ETFs. For example, the most popular China country-specific ETFs available include the VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: PEK), the iShares MSCI China A ETF (BATS: CNYA), the Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), and the KraneShares Bosera MSCI China A ETF (NYSEArca: KBA).
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