From the fourth quarter of last year to the first quarter of this year, China-related funds issued overseas have been actively adjusting their positions for shares. China's animal husbandry and planting industries are favored, the real estate industry is also showing a pick-up trend, and the biotechnology industry has been sold by funds.

With the recent epidemic situation becoming more and more stable, some foreign-funded institutions combined with the valuation of A-shares believe that the current time for A-share allocation has emerged.

Animal husbandry, planting, real estate warming

Data from Copley Fund Research, a global fund research firm, show that by the end of the first quarter, overseas China funds (based on the MSCI China Index), overseas China A-share funds (based on the MSCI China A-share Index), and overseas Greater China funds (funds with investment regions in Greater China) totaled US $153 billion, or about 1.012 trillion yuan.

Data show that overseas Chinese funds have the most obvious increase in positions in the animal husbandry and planting industry. The average proportion of fund assets in the animal husbandry and planting industry is 0.97%, the highest level in history. Of the 129 actively managed overseas Chinese funds, 45.74% of the products are distributed in the animal husbandry planting industry. Compared with the MSCI China Index, 37.21% of the fund allocation exceeds the index and is in a state of overallocation.

As of the first quarter of this year, the increase of livestock and planting positions by actively managed overseas Chinese funds was the most obvious in all industries. In terms of the proportion of funds that have laid out the industry, this figure has risen by 9.3 percentage points in six months, while the proportion of overallocated funds has increased by 7.75 percentage points.

In terms of individual stocks, Yili shares are the most popular among overseas Chinese funds. 24.8% of the funds hold this stock, and the average fund assets account for 0.6%, exceeding the reference benchmark. Tongwei shares and Muyuan are also held by more funds, but there is a big gap between the quantity share and Yili shares.

During this period, many overseas China funds have newly set up stocks in animal husbandry and planting, such as the Mingji China dividend Fund, which is owned by Chinese investment expert Mingji International.

From the perspective of fund style, Copley fund research said that with the exception of value funds, other funds have increased exposure to this industry.

Another trend worth watching is that the allocation of overseas Chinese funds to the real estate sector is warming. Although the allocation of real estate by overseas Chinese funds is still at a low level, there are some signs of improvement.

Data from Copley Fund Research show that in terms of the proportion of funds that have laid out the industry, it has increased by 3.9 percent in the past six months. The average share of fund assets in the industry also rose 0.45 percentage points. Copley fund research believes that this shows the marginal improvement of the allocation of overseas Chinese funds to the real estate industry. However, in the long run, overseas Chinese funds still allocate to the real estate industry at a historically low level. Moreover, in terms of the average proportion of fund assets, the allocation of overseas Chinese funds to the real estate industry is still lower than the reference MSCI China index.

Although the overall allocation is still low, but the first domain Yingxin, Fidelity and other well-known Chinese investors' funds have a higher allocation of the real estate industry, and most of them are allocated by value funds.

In terms of individual stocks within the industry, China Overseas Land & Investment and Longfor Group attracted more funds, and Poly Development was built by many funds.

Biotechnology is not as expected.

In contrast to the above-mentioned increase in positions, overseas Chinese A-share funds have significantly reduced their holdings in the biotechnology industry. The proportion of fund assets of overseas Chinese A-share funds in the biotechnology industry fell to 1.14 per cent from 4 per cent in July 2020, which is low compared with the MSCI China A-share index. In the health care category, the biotechnology sub-industry has also slipped from the sub-industry most favored by overseas Chinese A-share funds to fourth place, behind sub-industries such as biopharmaceuticals.

Among overseas Chinese A-share funds, the proportion of funds in this sub-sector has fallen by 4.1 percentage points and average fund assets by 0.35 percentage points in the past six months to the end of the first quarter of 2022.

In terms of individual stocks within the industry, Changchun Hi-tech, Kangtai Biology and Yao Ming Biotechnology are the most popular stocks. Copley fund research pointed out that in addition to Changchun high-tech, the fund's interest in biotechnology is relatively weak.

Foreign-funded institutions: the opportunity for A-share allocation has emerged.

Because the valuation is attractive enough, some foreign investors think that the allocation value of A-shares has been reflected.

Jiang Zhenghao, Baling China stock investment manager, believes that the allocation value of A shares has been reflected, waiting for a turning point. On the industry side, Baling takes a cautious view of some home appliance companies because of concerns about rising cost inflation, and treats the biopharmaceutical industry cautiously given the high uncertainty about growth prospects, Mr Jiang said. At the same time, in the context of macro support for specific commodities, Baring is exploring investment opportunities related to raw materials. "there has been no major change in our overall investment strategy. We take a positive view of the medium-and long-term prospects of Chinese enterprises, and continue to be optimistic about the investment themes with structural growth opportunities in the 14th five-year Plan. Including consumption upgrading, scientific and technological innovation, green energy development and so on. "

Overseas asset managers such as APS also believe that foreign investors' attitude towards Chinese assets may be further improved. The reporter learned that some Chinese traders in overseas pensions and sovereign funds have received additional investment from clients. "despite the poor performance of Chinese stocks in 2021, our clients are still increasing their capital," said one trader who specializes in Chinese growth companies. We are growth style investors, focusing on growth industries, including TMT. Growth is always expensive, and it takes a long time, sometimes three or four years, to get the chance to get the best company. Now's your chance. Because the investment period is long enough, we are not worried about market fluctuations. The trader's clients include top overseas sovereign funds.

Foreign-funded institutions, including Goldman Sachs Group, believe that the evolution of the epidemic is still one of the focuses of the layout of overseas institutions in China.