Boston Quant Investor Is Betting on China Economic Recovery

(Bloomberg) --

Acadian Asset Management is warming up to shares of Chinese companies that are most sensitive to the economic cycle.

An improvement in the country’s data next year should help China’s cyclical stocks outperform a growth or quality-focused strategy, according to Acadian Asset’s Bin Shi, who helps run a China equity fund at the Boston-based money manager. A gauge tracking the shares -- made up largely of banks, insurers and miners -- is having its worst year since 2015 relative to a non-cyclical index.

China’s economy is growing at the slowest pace since the early 1990s and accelerating inflation is complicating the central bank’s stimulus response. Still, data released this month have shown signs of firming up, with gauges of manufacturing and service sector activity beating analysts’ estimates.

“We believe that the environment has slightly shifted as the U.S.-China relationship improves,” Shi said in an interview on Tuesday. Acadian has $94 billion in assets. “Our model has a strong emphasis on valuations, which will give us an edge on a recovery for cyclicals if the broader economy improves.”

Factor investing groups stocks by characteristics such as whether they trade on lower multiples of book value or earnings, or have a smaller market capitalization than their counterparts. In China’s onshore domestic market, an index of stocks selected to target the growth factor has substantially outperformed a counterpart focused on value by almost 30 percentage points this year.

Chinese stocks could receive an additional lift if MSCI Inc. resumes steps that could put more domestic shares in its global benchmarks, Acadian’s Shi said. Last month the index compiler said it would only consider adding more yuan-denominated shares to its indexes after Beijing addresses concerns over market accessibility.

To be sure, China’s CSI 300 Index has gained just 2.7% since MSCI first added the shares to its indexes in early 2018. Since April, the index has largely moved sideways.

“I’d expect by year-end 2020 Chinese regulators will make significant progress so that MSCI will start another consultation process,” Shi said. Next year “we’ll continue to see inflows to Chinese markets -- but most inflows will be active money as global asset allocators try to rebalance portfolios.”

--With assistance from Sybilla Gross.

To contact the reporter on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger, Sofia Horta e Costa

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