China A Equity Strategy
China A Equity Strategy

China A Equity Strategy

 
 
 
Summary

The Morgan Stanley China A Equity Strategy is a concentrated strategy focusing on seeking stocks with high secular growth and tactical positions in cyclical stocks with attractive valuation and/or good fundamentals and dynamics. To achieve its objective, the strategy combines top-down sector allocation with bottom-up stock selection and disciplined risk management. 

5-10%
TARGET ALPHA
25-40
NUMBER OF HOLDINGS
6-8%
EXPECTED TRACKING ERROR
2006
INCEPTION DATE
 
 
Investment Approach
Philosophy

The investment team believes that there are inefficiencies in the China A-share equity market that it can systematically take advantage of through a disciplined investment process. The team believes that over the next decade China is likely to embark upon long-term change to its economic growth model. Some of the team’s long-term themes are based on this. These long-term themes act as anchors and provide a framework upon which we structure our strategy. We seek to generate alpha as these themes develop. 

Our investment philosophy looks for multiple drivers of investment ideas that can outperform by identifying the macro drivers and company fundamentals that have the potential to drive out-performance. The investment team focuses on stocks that have a sustainable growth profile and a high or increasing return potential to the shareholder and looks for sectors/themes that consensus may overlook, but where we believe positive change may yet occur. 

 
Differentiators
LEVERAGING THE EXPERTISE OF A HIGHLY EXPERIENCED AND STABLE GLOBAL INVESTMENT TEAM

China’s domestic market has unique macroeconomic characteristics that require experienced and dedicated professionals who can provide first hand knowledge of China’s domestic market and the companies that operate there. Morgan Stanley Investment Management’s (MSIM) China investment team has a solid institutional history and good track record and is committed to the long-term success of China A-share investing. The diversity, experience and intense interaction of our Asian Equity and Global Emerging Markets investment team is a significant factor in our process.

PROVEN PROCESS

MSIM is a pioneer in China A-share, Asia and emerging markets investing and has demonstrated expertise and commitment to the investment universe through all market cycles. Having been investing in Asia since 1986 and in China A Equity since 2006, we believe that our time-tested investment philosophy and investment process can help deliver attractive performance.

GOVERNMENT AND INDUSTRY RELATIONSHIPS

Due to Morgan Stanley’s global presence, reputation and extensive resources, the strategy’s investment team is able to access company management and senior government leaders. Such access helps the team perform original research and rigorous analysis, gain insights into country, industry and business fundamentals, and establish long-term relationships on behalf of the strategy.

 
 
 
Investment Process

The team follows a disciplined investment process that integrates both top-down and bottom-up perspectives. 

  1. TOP-DOWN ANALYSIS: We focus on dynamics such as macroeconomic indicators, social and political trends, fiscal and monetary policy and currency movements. This is combined with an in-depth analysis of market sentiment and valuation analysis (based on price/book (P/B) value, price/ earnings (P/E) and price/cash flow (P/CF) ratios as well as intrinsic value models such as discounted cash flow (DCF) and Sum of the Parts). This process provides a framework for thematic/sector analysis.

  2. BOTTOM-UP STOCK SELECTION: At the stock level, our bottom-up fundamental analysis based on dynamics, valuation and sentiment is integral in understanding the companies in which we invest. We focus on companies with what we consider strong management and good earnings visibility. Interviewing company management gives us important information about their ability to execute, their integrity and the risks inherent in their business models. As a result, the China Equity team conducts approximately 400 company visits/meetings with corporate and government entities as well as sector and industry specialists each year, spending at least a week per month on the ground throughout China.

  3. We spend, approximately, 30% of our time on top-down macro (including macro-economic analysis and macro portfolio themes) and sector analysis and 70% on bottom-up security selection and analysis.
8933918-China-A-Strategy-Graphic
 
 
Portfolio Managers  
Gary Cheung
Managing Director
17 years industry experience
May Yu
Managing Director
21 years industry experience
 
 
 
 

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