Income investing 'preferred strategy' in China, says J.P. Morgan AM

Income investing 'preferred strategy' in China, says J.P. Morgan AM

J.P. Morgan Asset Management (JPMAM) has launched the JPMorgan China Income Fund, a mixed asset income portfolio capturing China’s income opportunities through exposure to onshore and offshore equity and bond markets. 

Co-managed by JPMAM’s equity and fixed income teams, the fund is designed to capture the wide income opportunity set in the China space, by investing in instruments such as onshore and offshore equities, and onshore and offshore bonds.  With a view to accessing competitive yield investments in various markets, the fund managers intend to invest 40-80% in equities and 20-60% in bonds.

Lilian Leung, fund manager of JPMorgan China Income Fund, says, “Despite the market recovery in recent months, China equity market valuations on a price-to-book bases are still close to trough levels. Equity income has recently become a preferable strategy in China, as data indicates that higher income stocks, be it onshore or offshore, have started to outperform in the past year. Meanwhile, a growing number of Chinese companies have started to pay dividends to investors and the total dividend pay-out across the China market has increased substantially, which expands the investment choices for us as a bottom-up manager. We believe that an income strategy potentially offers a better risk-adjusted return to investors.” Income investing focuses on stable, income-producing investments — such as bonds and equities with healthy dividends.

China’s growth has moderated at lower levels and the macroeconomic environment remains relatively stable.  Stimulus measures are likely to continue to stem deceleration, providing near-term support.  The effective “zero” rate is expected to be supportive for income-generating assets. 

The fixed income space also offers attractive opportunities.  While over 70% of government bonds globally are yielding below 1%, the 10-year China Government Bond is currently at 2.8%.  Additionally, onshore and offshore China bond markets present a diverse range of opportunities in terms of yield and duration.  The fund’s ability to access both markets maximizes the investment choices to capture income.

Marcella Pun, head of retail distribution at JPMAM, says, “With disciplined screening and bottom-up research, the fund managers dynamically invest in sectors and markets offering higher income potential. The multi-asset strategy also tends to enhance risk and return profile, thereby offering investors a balanced approach to fully capture the income potential in China.” 

Adopting a customized benchmark consisting of 30% CSI 300 Index (Net Return) + 30% MSCI China Index (Net Return) + 40% Citigroup Dim Sum Bond Index, the fund has an investment objective to provide investors with income and long-term capital growth by investing at least 70% of its non-cash assets in equity securities of companies which are based in, listed on any stock exchange of, or operate principally in the China and that the investment manager expects to pay dividends and Chinese debt securities issued and/ or distributed in or outside the PRC.

The fund may be suitable for investors looking for access to China’s onshore and offshore markets to participate in the potential benefits of a new vision for China income investing, and achieve dynamic allocation through active management.  The fund is available in USD and HKD, including a monthly distribution feature.