Capital Investment Entrant Scheme^
|Fund Name||Share Class Available||Investment Objective|
|Hong Kong Dollar Bond*||A Acc - HKD
A Dis - HKD
A1 Acc- HKD
|The fund aims to provide capital growth and income by investing in fixed and floating rate securities denominated in HKD.|
|Hong Kong Equity*||A Acc - HKD
A Acc - USD
A1 Acc- HKD
D Acc - HKD
|The fund aims to provide capital growth by investing in equity and equity related securities of Hong Kong SAR companies.|
|China Opportunities*#||A Acc - HKD
A Dis - HKD
|The fund aims to provide capital growth by investing in equity and equity related securities of Chinese companies.|
Strong experience and expertise
The funds are managed by Schroders’ top-class investment teams, namely the Asian fixed income team and the Asian equities team. The teams have extensive investment experience. In particular, the Hong Kong Dollar Bond fund manager has 13 years, the Hong Kong Equity fund manager has 20 years, and the China Opportunities fund manager has 18 years of investment experience.
Extensive resources and insights
The Asian fixed income team consists of 12 investment professionals while the Asian equities team has 40. The teams can also leverage on Schroders’ resources of over 350 portfolio managers and analysts in the world for research and insights.
Recognition for superior performance
The teams have consistently won awards from renowned organizations, including Lipper Fund Awards and Morningstar Fund Awards, for the superior performance in managing Asian fixed income and Asian equities mandates.
Offering Documents and Fund Factsheets
^ Capital Investment Entrant Scheme is referred to as CIES. The CIES has been suspended with effect from 15 January 2015 until further notice. Please visit the HKSAR Immigration Department website and/or check with your Financial Intermediary for details.
* The funds are under the Schroder International Selection Fund. Investment involves risks. Past performance is not indicative of future performance. Please refer to the relevant offering documents for further fund details including risks factors.
# Please refer to this investor notice regarding this fund.
In 2018, we expect Asian markets to be affected by opposing forces. Global growth and low inflation are potent drivers for emerging market (including Asian market) performance. Central banks in the US, Europe and Japan will only cautiously remove their accommodative policies allowing financial markets to continue performing. Offsetting forces are the negative impact of higher oil prices as Asian countries are large energy importers. China remains an unknown: a sharper than expected moderation in growth could have negative implications on much of Asia. Markets will take their queue depending on the sequence of these events but we expect the year to be generally positive for Asian fixed income.
The US economy has picked up steam, with capital expenditure and stronger productivity supporting the recovery. We expect some usual seasonal bumps to appear in Q1 but these could be offset by positive sentiment from US tax reform legislation. The European recovery seems to be on track, helped by the ultra-accommodative European Central Bank and solidification of the EU political compact. As any form of monetary tightening will be very gradual, we expect the recovery to continue. Japan is now posting its longest economic recovery in decades. Nevertheless, the Bank of Japan has maintained negative rates and keeps 10-year government bonds at zero yields through ongoing purchases. China has been growing faster than expected thereby contributing to advanced and emerging markets economies.
Demographics, technology and globalization are keeping inflation unusually tame. Even the Fed, which has seen a complete improvement in the US labor market has expressed greater concern that low inflation might be more persistent than it initially thought. We expect Global Central Banks to only gradually remove monetary policy accommodation. While the above forces will play an important role in supporting Asian bonds and currencies, there are a few headwinds which will periodically adversely impact markets.
We expect slightly slower growth rates due to monetary policy tightening, supply side reforms and environmental policies. The Chinese leadership has communicated its main policy goals during the 19th Communist Party Congress. Growth targets were de-emphasized, containing excessive leverage was highlighted and tackling pollution was made a priority. While these policies are positive over the medium run, they could cause a slowing in Chinese demand for Asian exports.
Within Hong Kong, the cap in mortgage rates has led the city’s banks to hedge mortgage risk. The balance sheet activities carried out by the banks have resulted in rising front-end rates and the further flattening of the Hong Kong government yield curve. As a result, the front end of the Hong Kong government curve is currently relatively more attractive while we are underweight the longer dated maturity bonds. On the Hong Kong credit side, valuations continue to remain expensive versus historical levels while we actively look out for opportunities (such as market disconnect) to increase allocation at appropriate levels.
2017 has been a very strong year for equity markets, and the Hong Kong market has been among the best performers globally, with the Hang Seng Index up more than 30% at the time of writing. This is especially impressive as we entered the year with considerable macro uncertainty in the world following the shock election of President Trump in the US on a platform that was very hostile to free trade, and China in particular. The US dollar was also rallying strongly, which in the past has created headwinds for Asian markets, and the Fed was expected to hike rates several times and commence tapering its balance sheet, all of which had the scope to upset the equilibrium in global asset markets after such a long period of ultra-low rates. North Korea, meanwhile, also presented a more and more visible threat to regional security.
In reality, however, politics globally have largely remained a side-show this year, and it has been the continued benign economic backdrop that has helped underpin markets. Global growth has strengthened moderately while, critically, inflationary pressures have remained very subdued - so bond yields have remained well anchored at close to their historical lows despite the Fed hiking rates three times and starting taper. The US dollar, meanwhile has pulled back from its earlier highs. Despite the hostile rhetoric from the US, there have been only very limited trade sanctions imposed and global trade growth has continued to strengthen after several years in the doldrums. This so-called ‘goldilocks’ environment – not too hot, not too cold – is ideal for equity investors as the improving growth supports corporate earnings, while there is still no pressure on valuation multiples from a rising cost of capital.
In China we have seen a slightly more mixed backdrop this year. Growth has improved in 2017 versus 2015/16 as the lagged impact of strong credit growth and booming property prices have fed through into investment spending, while the stronger external backdrop has supported exports. Consumption has also remained robust, again supported by rapid household loan growth and the positive wealth impact of buoyant property prices. However, unlike most western economies, China has seen market interest rates and bond yields rising sharply at the same time, as the Central Bank has moved to try and squeeze out some of the excess leverage in the ‘shadow banking’ system. Partly reflecting this different liquidity backdrop, on-shore China A-shares have in general underperformed their off-shore H-share or US listed counterparts.
Although overall GDP growth and investment spending have been fairly robust in recent quarters, helping out the profits for the more cyclical parts of China’s ‘old economy’, some of the strongest performance in the China equity markets continues to come from those companies geared into the strong secular trends in the service sector. On-line companies like Tencent, Baidu, Alibaba continue to rapidly gain market share from off-line peers in areas like retailing, advertising and entertainment, while also stimulating the creation of profitable whole new markets in areas like mobile gaming, cloud computing etc. Strong demand from consumers ‘upgrading’ their products in sectors like autos, electrical goods, home furnishings is also enabling outsized revenue growth from companies offering aspirational products to local buyers. More generally, rising urban incomes also continues to support strong demand in areas like travel and education.
Encouragingly, with the opening up of the A-share market through the Stock-Connect in the last two years, we are also presented with a much wider universe of stocks with which to gain exposure to these trends.
Closer to home in Hong Kong, we look at companies that have outgrown the relatively mature Hong Kong economy and are delivering attractive growth from their regional or global footprints – banks, insurance companies, conglomerates, manufacturing businesses etc. The gradual uptrend in US and Hong Kong dollar interest rates is further supporting margins and revenues for some of these financial names. In addition, we also continue to see attractive value in some of the more traditional Hong Kong property names – particularly those concentrated in the commercial rather than residential markets, where a lack of supply is putting upward pressure on rents and rising recurring income can drive strong dividend growth over the longer term. Rising US rates would normally present some headwinds to these names, but equity prices have long since decoupled from the physical property markets in Hong Kong, and with discounts to net asset value approaching 50% in many cases, we think these risks are largely priced in.