Alpha harvesting: taking a quant approach to China A-Shares
China A-shares have increasingly become part of leading global benchmarks, while that nation’s economic growth and prospects remain one of the strongest in the world.
One way of managing today’s unpredictable environment is to take an active quantitative approach to investing in A-shares. PineBridge Investments (PineBridge) believes an active quant strategy can systematically identify mispriced companies throughout the deep China A-share market, adding different sources of alpha to complement an investor’s existing portfolio.
Using proprietary data-driven models, active quant strategies can efficiently rank and select companies according to certain factors (for example, fundamental drivers like earnings and valuation) while incorporating disciplined risk management and cost efficiencies.
Today, active quant strategies account for only 4% of all active equity strategies in the A-share market, leaving ample room to grow.
IDIOSYNCRATIC MARKET RIPE FOR QUANT
The unique characteristics of the A-share market provide a source of diversified alpha that is stronger and more persistent than that of many developed equity markets, such as those in Hong Kong and the US. The dispersion of returns in A-shares provides a deep and compelling opportunity set for active managers.
Looking closer at the variance of return sources in the A-share market, we find that stock- and factor-specific risks play an important role in driving returns, presenting alpha opportunities ripe for active approaches.
Moreover, over 85% of total trading volume is driven by retail investors who generally rely on price momentum, speculation, and headlines rather than fundamentals, when making investment decisions. This type of investment behaviour can add to volatility and lead to pricing inefficiencies that a skilled active manager can exploit.
The above-mentioned market characteristics provide ample reasons why investors should not lose sight of opportunities in the A-share market despite the ongoing trade dispute.
By combining fundamental inputs with sophisticated algorithms, active quant strategies offer investors greater precision in alpha harvesting while balancing risk and cost constraints. As quant investing is relatively new to China compared to developed markets, investors should seek onshore partners with a strong track record of investing in China A-share quant strategies across different market environments.
To learn more about the China A-share opportunity, please click here*
Important information:
*In Hong Kong, the website www.pinebridge.com has not been reviewed by the Securities and Futures Commission (“SFC”) and may contain information of funds not authorised by the SFC. In Singapore, the website www.pinebridge.com (including any contents therein) have not been reviewed or endorsed by the MAS.
Global Disclosure Statement
PineBridge Investments is a group of international companies that provides investment advice and markets asset management products and services to clients around the world. PineBridge Investments is a registered trademark proprietary to PineBridge Investments IP Holding Company Limited.
For purposes of complying with the Global Investment Performance Standards (GIPS®), the firm is defined as PineBridge Investments Global. Under the firm definition for the purposes of GIPS, PineBridge Investments Global excludes some alternative asset groups and regional legal entities that may be represented in this presentation, such as the assets of PineBridge Investments.
Readership: This document is intended solely for the addressee(s) and may not be redistributed without the prior permission of PineBridge Investments. Its content may be confidential, proprietary, and/or trade secret information. PineBridge Investments and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part.
Opinions: Any opinions expressed in this document represent the views of the manager, are valid only as of 10 August 2018, and are subject to change without notice. There can be no guarantee that any of the opinions expressed in this document or any underlying position will be maintained at the time of this presentation or thereafter. We are not soliciting or recommending any action based on this material.
Risk Warning: All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. If applicable, the offering document should be read for further details including the risk factors. Our investment management services relate to a variety of investments, each of which can fluctuate in value. The investment risks vary between different types of instruments. For example, for investments involving exposure to a currency other than that in which the portfolio is denominated, changes in the rate of exchange may cause the value of investments, and consequently the value of the portfolio, to go up or down. In the case of a higher volatility portfolio, the loss on realization or cancellation may be very high (including total loss of investment), as the value of such an investment may fall suddenly and substantially. In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved.
Performance Notes: Past performance is not indicative of future results. There can be no assurance that any investment objective will be met. PineBridge Investments often uses benchmarks for the purpose of comparison of results. Benchmarks are used for illustrative purposes only, and any such references should not be understood to mean there would necessarily be a correlation between investment returns of any investment and any benchmark. Any referenced benchmark does not reflect fees and expenses associated with the active management of an investment. PineBridge Investments may, from time to time, show the efficacy of its strategies or communicate general industry views via modeling. Such methods are intended to show only an expected range of possible investment outcomes, and should not be viewed as a guide to future performance. There is no assurance that any returns can be achieved, that the strategy will be successful or profitable for any investor, or that any industry views will come to pass. Actual investors may experience different results.
Information is unaudited unless otherwise indicated, and any information from third-party sources is believed to be reliable, but PineBridge Investments cannot guarantee its accuracy or completeness.
PineBridge Investments Europe Limited is authorised and regulated by the Financial Conduct Authority (FCA). In the UK this communication is a financial promotion solely intended for professional clients as defined in the FCA Handbook and has been approved by PineBridge Investments Europe Limited. Should you like to request a different classification, please contact your PineBridge representative.
Approved by PineBridge Investments Ireland Limited. This entity is authorised and regulated by the Central Bank of Ireland.
In Australia, PineBridge Investments LLC is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) in respect of the financial services it provides to wholesale clients, and is not licensed to provide financial services to individual investors or retail clients. Nothing herein constitutes an offer or solicitation to anyone in or outside Australia where such offer or solicitation is not authorised or to whom it is unlawful. This information is not directed to any person to whom its publication or availability is restricted.
In Hong Kong, the issuer of this document is PineBridge Investments Asia Limited, licensed and regulated by the Securities and Futures Commission (SFC). This document has not been reviewed by the SFC.
In Dubai, PineBridge Investments Europe Limited is regulated by the Dubai Financial Services Authority as a Representative Office.
PineBridge Investments Singapore Limited (Company Reg. No. 199602054E) is licensed and regulated by the Monetary Authority of Singapore (MAS). In Singapore, this material may not be suitable to a retail investor and is not reviewed or endorsed by the MAS.