Most investors are familiar with the FAANGs and are giving increasing attention to the BATs as technology firms are disrupting traditional paradigms. Yet, one might be surprised at how significant technology-driven innovations have been reshaping the ecosystem we live in. I prefer the word “reshaping” over “disrupting” as a lot of the innovations and so-called “disruptions” have already proliferated into our blood and our everyday life – for instance, “Digital Revolution”  is at the forefront of this transformation and is happening every minute around us.The exponential growth in big data, artificial intelligence (AI), and internet of things (IoT) have led to innovations in various far-reaching implications beyond merely internet and information technology. In this piece, we explore the Asia innovation theme by discussing:• State of Asia innovation• What sectors are expected to be most affected?• How are innovations disrupting traditional industry classifications and the investment landscape?State of Asia innovationAsia is home to 50 percent of the global internet users, 1.8 billion of active social media users, and about US$75 billion worth of unicorn startups. According to statistics from UNESCO on countries’ R&D spending, 3 of the top 5 are Asian countries – China #2, Japan #3, South Korea #5. These 3 countries also collectively account for roughly 40% of world researchers and are among world’s largest robotics markets as well.According to a white paper from Harvard Business Review, leading companies around the world are leveraging Asia’s liveliness and talent to develop new products, services, and business models that drive growth, with many finding or even building innovation ecosystems in Asia. Three commonly cited factors on how Asia differentiates itself from the rest of the world in the pace of innovation are: 1) the faster growing economies compared to the developed Western counterparts, 2) robust and growing demand for products and services not only from the deep and wide range of manufacturers domiciled in Asia but also from the region’s fast-growing middle class, and 3) strong support for the business community from governments that recognize the crucial role innovation plays in growing both companies and economies.What sectors are expected to be most affected?While information technology itself is a sector, with the technological innovation and development of times, technology is now more of an enabler in this modern era. Nearly every industry can find ways to benefit from innovative technologies in an effort to improve output or reduce costs. Apart from the technology sector (e.g. software, hardware), the industries that are at the forefront of experiencing tech-enabled exponential growth in Asia include:Retail: Online retailing along with online-to-offline (O2O) offerings have made shopping easier and cheaper for consumers, which were made possible by lower cost structures and improved efficiency in delivery and logistics. In How is “digital revolution” in Asia transforming the way we live, we discussed how Alibaba’s Tmall and JD.com generated impressive single day sales. In addition, AI and big data are increasingly being deployed by online and traditional retailers to better identify trends and predict customer demands.Industrials: The surge in robotics investment in Asia puts industrial automation at the forefront of Internet of Things (IoT) and implementation of AI in the physical world. With greater precision on the metal arms and an AI mind, advancement in robotics will create smarter, more capable machines to complement or replace the aging human workforce in many fields. Technology advancement will also enable better performance in other areas such as operations optimization and predictive maintenance.Healthcare: The increase in aging population and rising middle class in Asia has led to strong demand for healthcare products. In 2017, about $40 billion dollars were raised for life science projects in the region. Advanced data analytics creates large benefit to pharmaceutical companies on drug discovery and clinical trials. Physiological simulation can accelerate product development, and a 3-D printed or virtual reality-based tissue modeling can help with assessment of potential concerns. AI has also been put into use in diagnostic imaging and robotic surgery. Furthermore, innovation has made patients to be more connected and engaged that now there’s digital pills or nanobots that can go into your body (and blood) to examine and respond real-time data to you and your doctor’s digital devices. Transportation: The transportation landscape is transforming in many different ways and has affected many other sectors - I use “transportation” for the lack of a better word. In the sky, drones with intelligent sensors and accurate GPS positioning has enabled new ways of filing, package delivery, and farming. On the road, we see advancements in electrical vehicles and autonomous driving enabled by technologies in heavy-duty battery, image sensors, and AI algorithms. Further, the IoT era has also spurred the shared-economy concept in transportation from cars to bikes.How are innovations disrupting traditional industry classifications and the investment landscape?About 20 years ago, S&P and MSCI put their collective heads together and created the now commonly-used Global Industry Classification Standard, aka GICS®. Lately, there has been plans for extensive sector revisions, which will be effective toward the end of September this year. The revision hopes to better reflect how modern companies operate in the brave new world, but has also raised questions – for instance, should e-commerce companies like Amazon or Alibaba be Consumer Discretionary? Among the FANG gang, Netflix should also become Consumer Discretionary, while Facebook and Google into the new Communication Services sector along with other Media players like Disney?Information Technology sector ETFs has been a popular and useful way to capture growth opportunities. However, with the increasing amount of technology-enabled innovation across virtually all sectors and industries, it is quite fair to say that investment vehicles indexed or benchmarked to the “GICS = Information Technology” pool has been significantly disrupted, and savvy investors have shifted away from these to thematic ETFs specifically on Robotics & AI, Social Media, Semiconductors, Biotech, etc.While many ETF managers build products on top of broad GICS or ICB classification system, others, including us (Premia Partners), work with index providers to redefine classification, especially when approaching disruptive themes in the old-school industry classifications are slow to adapt to new economic realities. For our upcoming ETF themed on Asia innovative technologies, we work with FactSet to identify relevant companies based on their revenue segments into very detailed levels. The article Targeting Asian Growth Through Innovation gives a detailed discussion into the index methodologies, and you may learn more about the Premia Asia Innovative Technology ETF (3181 HK) at the product page.

Aug 13, 2018

Artificial Intelligence (AI) and Robotics represent long-term transformational shifts, affecting the way businesses operate and how people live. Recent technological advancements in AI and Robotics are disrupting a range of industries from manufacturing, to healthcare and transportation.Previously we discussed how digital revolution in big data & AI has been transforming the way we live. In this piece, we further explore the theme of AI & its applications when combined with Robotics, along with examples of a few leading companies that are captured in our recently launched ETF on Asia Innovation.What are AI & Robotics?Robotics is an interdisciplinary branch of engineering and computer science. It deals with the design, construction, operation, and use of robots, as well as computer systems for their control, sensory feedback, and information processing.Statistics from the Internal Federation of Robotics reported that worldwide robot sales have reached over 380 thousand units in 2017, more than tripled from five years ago. Asia is home to the top 3 markets – China, South Korea, and Japan – accounting for almost 60% of world sales.Global Sales of Industrial Robots (Units Sold)Source: IFR Statistical Department, Premia Partners analysisAI is a recently rising theme to many people, but it is rather a broad concept - Wikipedia defines AI as follows: “Artificial intelligence (AI), sometimes called machine intelligence, is intelligence demonstrated by machines, in contrast to the natural intelligence displayed by humans and other animals.” While many use the terms AI, machine learning (ML), and deep learning (DL) interchangeably, they are not the same. To put it simple, AI is the macro topic of machines performing tasks that once required human intelligence to complete, and it broadly encompasses the entire field of study of which ML and DL are sub-segments.A smart AI mind + an agile robotic body - together, advancements in the two fields are revolutionizing the way we complete tasks, analyze data, and make decisions. Below, let’s take a closer look at a few examples in Asia –AI & Video Surveillance: Image recognition leader HikvisionSource: HikvisionHikvision is a Chinese company that specializes in intelligent video surveillance solutions, and it is one of the world’s largest security & surveillance manufacturer. Since founded in 2001, the company has been a pioneer in the video surveillance industry with core technologies in audio and video encoding, video image processing. The flagship product HikCentral has facial recognition, face matching, face searching, and people counting features, and can be integrated with security access control and alarm systems. Over the past several years, Hikvision has expanded its business into vertical markets, such as transportation, education, healthcare and industrial automation. The AI-enabled video intelligence technology allows it to be a key player of smart city and smart home in the IoT era.AI & Healthcare: Speech and voice recognition leader iFLYTEKSource: iFLYTEKiFLYTEK is the No.1 speech recognition solution provider in China, and a global leader in speech-based artificial intelligence technology. It was ranked #6 in MIT Technology Review’s Global 50 Smartest Companies in 2017. The company applies deep learning in a range of fields such as speech recognition, natural-language processing and machine translation. In China, court systems use its voice-recognition technology to transcribe lengthy proceedings; business call centers use its voice synthesis technology to generate automated replies; and Didi, a popular Chinese Uber-like app, also uses iFlytek’s technology to broadcast orders to drivers.Recently, iFLYTEK has put significant efforts expanding its technology to healthcare applications. An iFLYTEK robot passed the written test of China’s national medical licensing examination, and its AI-enabled robots are now in use at many hospitals, from directing patients to the right departments based on patient’s described symptoms to helping doctors capture their dictations and analyze patient information.Robotics & Entertainment: Consumer electronics leader SONYWhile many believe robotics have only recently become a viable technology, the Japanese electronics giant SONY has been involved in AI & Robotics since last century. SONY released its AIBO home entertainment robot in 1999, and the company continues to develop its core AI technologies and recently redesigned AIBO with advanced AI capabilities. The new AIBO is designed to be an autonomous entertainment robot that can form an emotional bond with owner. Furthermore, with AI and facial-recognition technology, AIBO can learn and adjust its behavior based on the owner’s unique characteristics, and even develop its own personality over time.Sony’s Innovation in Home Entertainment – AIBO Robot DesignSource: SonyRecently, Sony is partnering with Carnegie Mellon University to work on AI & robotics applications in food preparation, cooking and delivery. Such would teach machines to handle fragile and irregularly shaped materials in small areas, which could be transferrable to many other industry applications.Robotics & Manufacturing: Industrial automation leader FANUCSource: FANUCFANUC has been a prominent player in robotics and automation industry since the early 1970’s. The company specializes in developing computerized numerical control (CNC) systems, which are robotic machines that execute on fed instructions with a high degree of accuracy and efficiency.A forerunner in robotics & automation, FANUC’s commitment to enhancing industrial manufacturing process through robotics technology is deep in its own gene. The company has been operating a “lights out“ factory since 2001. Their robots are building other robots at a rate of about 50 per 24-hour shift and can run unsupervised for as long as 30 days at a time. Recently, FANUC is also partnering with Nvidia to power an AI platform that will allow factory robots to learn over time and from each other.AI & Connected Cars: Samsung, BaiduSource: IoT AutomotiveIt is widely believed that AI is set to cause massive disruption within the transportation industry. Although obstacles remain for fully autonomous vehicles, the trend in electrical vehicles and connected cars has been magnificent. Large technology giants like Samsung and Baidu have been at the leading edge of developing smart automotive technologies in Asia, not only taking inputs from sophisticated sensors, GPS, and radar systems to effectively put digital eyes on the vehicle, but also adding in virtual assistants and smart IoT devices that make the connected car a personalized workplace, an entertainment centre and a vital part of one’s digital life ecosystem.Baidu and Harman International, a wholly-owned subsidiary of Samsung focused on connected technologies, are also partnering to jointly develop new cloud-based AI solutions for Chinese automakers with smart automotive features including automatic speech recognition (ASR) in English and Mandarin, natural language processing and speech synthesis.Related ETFs: Premia Asia Innovative Technology ETF (3181 HK)Related articles: Technology-enabled innovations:DisruptingReshaping Asia growth How is “digital revolution” in Asia transforming the way we live?

Aug 13, 2018

Typically, I wake up by my Xiaomi home AI robot with morning news and weather forecasts. I would then order my breakfast to the office via Meituan and pay with Alipay. Baidu map would find me the closest driver nearby across Didi and other car service platforms and let the driver know the fastest route to my destination. On my way, I would check my Wechat messages and the latest moments of my friend circle. Via my smartphone, I can check my latest fitness data synchronized from my smartwatch and smart-scale; I can also remotely reset my door password for my cleaner lady and control various electrical appliances at my home.Brought about by the advent of the Internet of Things, digital transformation is quickly moving beyond the realm of future fantasies in movies to become a daily reality. Chinese technology giant Tencent, for instance, has taken the idea of a messenger app to a whole new level with its WeChat platform, which combines the capabilities of an instant messenger, a social network, a search engine, an e-commerce shopping platform, a payment system and plus many more in one ecosystem.A latest study from Microsoft forecasts that 60% of Asia Pacific’s GDP will be derived from digital products and services created through use of technologies. In this piece, we take a deeper look into 3 digital technology related categories targeted by the Premia FactSet Asia Innovative Technology ETF (3181 HK):• E-commerce • Big data & Cloud • Artificial Intelligence E-commerce: Alibaba, JD.com As mentioned in our earlier article China Consumer is King, Alibaba’s e-commerce platform T-mall scored a record high single day sales figure of US$25 billion in 2017, which is 3 times bigger than the combined sales of Black Friday and Cyber Monday in the US. A total of 812 million orders were generated in 24 hours, which equates to 9,400 orders per second. The other Chinese e-commerce giant JD.com has also generated significant sales on that day in its own 6.18 shopping festival.Apart from the sales figures, it is interesting to notice the expansion of e-commerce ecosystem. On one hand is mobile payments - 90% of payments went through mobile phone, compared to about 40% just 3 years ago – this is largely attributed to the increasing penetration of tools like Alipay and WeChat Pay. On the other hand, we see impressive application of big data and automation in supply chain logistics - the first order of T-mall’s single day sold merchandise arrived at the customer’s door in only 12 minutes after purchase with delivery arranged from the closest warehouse; JD recently launched its drone delivery services and aims to eventually build an automated network from its warehouse inventory management to final delivery. Big data & Cloud: Baidu, Naver, Tencent, Alibaba, Rakuten Big data is important to business analytics in this fast-changing environment and to the advancement of deep learning and artificial intelligence. According to global marketing intelligence firm IDC, there’s a US$65 billion big data opportunity in Asia Pacific by 2020, and the trends point to big benefits.In the ecosystem of big data analytics, the businesses that gathers most data are: search engines, social media platform, and e-commerce platforms, and hence these names surface with little surprise: Baidu, Naver, Tencent, Alibaba, and Rakuten. And almost a natural extension, all of them have initiated cloud services for other institutions to access offerings such as software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS). While the combined market share is still small compared to Amazon or Microsoft, these Asian platforms are crucial infrastructure for domestic developments in big data analytics and artificial intelligence.Behavioral prediction is one example of learning based on big data, and it happens all the time from e-commerce platforms pushing merchandises to me based on previous views, to a map software pushing notifications of traffic conditions of my commonly taken route to home at the usual time I’m about to get off work. Artificial Intelligence: a technology, not a product AI has come a very long way since the ground-breaking work of British scientist Alan Turing, who is widely considered as the father of theoretical computer science and artificial intelligence. The term “Artificial Intelligence (AI)”, however, is a rather broad term and applications of AI ranging from gaming, robotics, marketing, to fintech, transportation, healthcare, and education, etc.. On the other hand, including the above-mentioned Cloud platforms, there are various hardware components needed to support AI, such as: sensors, semiconductors, data infrastructure and communication.We will further dedicate a case-study piece to introduce AI & Robotics and examples of Asian companies leading in various applications:- Security & Surveillance: Hikvision- Healthcare: Iflytek- Consumer Electronics: Sony- Industrial Automation: FANUC- Connected Cars: Samsung, Baidu Related ETFs: Premia Asia Innovative Technology ETF (3181 HK) Related articles: Technology-enabled innovations: Disrupting Reshaping Asia growth

Aug 13, 2018

Every investor is worried about a new round of depreciation of renminbi (Yes, again!). Seems this topic is always an easy sell among news headlines. Renminbi began to weaken, dropping from an exchange rate (USD/CNY) of 6.24 in late March to 6.82 as of July 24, since the breakout of a trade conflict between the US and China. The latest proposal from China central bank to incentivize banks to expand lending to companies created another worry among investors on monetary easing. The million-dollar question will be how far the depreciation can go. Let’s examine this matter from a few different perspectives and get a better understanding of the current situation.

Aug 02, 2018

Economic growth is ultimately the main driver of returns – it leads to improved earnings and therefore stock prices again and again. Yet many investors seem to have forgotten one of the fastest growing and most dynamic regions in the world. ASEAN has delivered an impressive 3 decades of 5%+ GDP growth, has one of the largest and youngest populations in the world and is increasingly powered by domestic, not global/export growth. Its small weights in MSCI indices mean the region is underinvested and we are excited to announce a new and easy way to add ASEAN exposure to your portfolio through the Dow Jones Emerging ASEAN Titans 100 Index. In this post, we cover the rationale, methodology and result of our approach to capturing ASEAN growth. To ask us a question, or express your interest, click here.

Jul 10, 2018

Innovation is increasingly a key requirement for economic growth. The story is no longer about Copied in China, but Made in China. The same is true throughout the Asian region. Unfortunately, until now, there’s been no easy and efficient way to build an Asia Innovation exposure. After months of discussions with clients, followed by months of research and data clean-up, we are pleased to announce the launch of the Premia FactSet Asia Innovative Technology Index. In this post, we cover the rationale, methodology and result of this innovative approach to capturing Asian growth. To ask us a question, or express your interest, click here.

Jun 29, 2018

The indices followed by our 2 Premia China A-shares ETFs (2803.HK and 3173.HK ) went through their first rebalance since the ETFs launched late last year. In this post, we recap the rebalance, the resulting exposure, the newest additions and everything else you need to know.

Jun 15, 2018

MSCI China A-shares inclusion is happening this week, but there are still a lot of global investors who hesitate to add China A to their portfolios. Over the last 12 months we’ve heard multiple reasons cited for this aversion to A-shares. In this post, we debunk the 10 most popular myths and highlight why the rational investor not only can, but should, allocate to A-shares, perhaps even ahead of MSCI’s multi-year inclusion plan.The 10 myths behind A-shares avoidance:1. China exposure is already covered via Chinese equities in HK & the US (offshore)2. All quality companies are listed offshore3. A-shares are trading at a premium to offshore Chinese equities4. A-shares have poor corporate governance5. A-shares are mainly SOEs whose interests do not align with shareholders6. A-shares add volatility only, without producing any long-term performance7. Renminbi is too volatile and always depreciates8. Rational investors should steer clear due to A-shares’ massive retail participation9. A-shares investment requires quotas and other complex processes 10. There isn’t enough research coverage.1. China exposure is already covered via Chinese equities in HK & the USFirst, the A-shares market has 3x the number of stocks available offshore. The daily turnover is 5x greater than both H-shares (HK) and ADRs (US) combined. In other words, the onshore market is the primary market, no matter what the global community may think. Some sub-sectors are even unique to the A-shares market only, namely aerospace and defense, Chinese distillers, entertainment & publishing, cable & satellite, precious metals, and many others. They are listed only onshore and include companies that many investors should be reviewing as part of their allocation to China in the 21st century. Conclusion: MythSource: Bloomberg as of May 21, 20182. All quality companies are listed offshoreFirst and foremost, this doesn’t hold up to scrutiny. China A-shares score similarly to many other global markets on metrics such as profit margin, ROA, ROE and current ratio. In fact, on all but ROA, China A-shares have a bigger quality exposure than MSCI World. In addition, many industry leaders are only listed in either Shanghai or Shenzhen, not offshore: Jiangsu Hengrui (pharmaceuticals), Midea (home appliances), Kweichow Moutai (beverages), China International Travel Services (leisure), and Shenzhen Inovance (automation), etc. If investors keep excluding A-shares from their radar screens, then they exclude many of the most recognized domestic consumer brands. Beyond the existing onshore listings, the launch of China Depositary Receipts (CDRs) in the coming months will encourage some offshore listed national champions to return home. In addition, the China Securities Regulatory Commission (CSRC) is speeding up IPOs of qualified unicorn companies in biotechnology, cloud computing, artificial intelligence, and high-end manufacturing. By then, the domestic markets will look even more complete and attractive. Conclusion: MythSource: Bloomberg as of May 21, 20183. A-shares are trading at a premium to offshore Chinese equitiesA-shares are trading at a premium? Yes, but only if looking at dual-listed A/H shares (the companies that are listed both onshore and offshore). The overall premium of dual-listed A-shares is ~20% over their dual-listed H-shares counterparts. But that is only part of the story.When looking at the overall market, the story is quite different. CSI 300, the main benchmark for China A, is trading at ~13.0x of forward PER versus MSCI China, the main benchmark for offshore Chinese equities, which is trading at ~13.4x. A-shares have a lower Price to Book and a higher Dividend Yield as well. Basically, both onshore and offshore China plays are trading at similar valuations. But that’s assuming mainstream benchmarks. At Premia, we follow the CSI Caixin Rayliant Bedrock Economy Index for our traditional economy ETF, 2803 HK (product page). A-shares investment looks even more attractive from a valuation point of view, when utilizing our approach. Conclusion: Partial MythHere’s another way to look at the dispersion. Mid/small-caps are currently trading in the ~10th-20th percentile in valuations relative to their own history. In contrast, mega/large-caps are trading in the 50th-60th percentile vs the last 10 years. Over a shorter horizon, mega-caps in particular look rich in the 75th-85th percentile vs the last 3-5 years.Source: Bloomberg as of May 21, 2018; China A: CSI300; Offshore China: MSCI China; Bedrock China A: CSI Caixin Rayliant Bedrock Economy4. A-shares have poor corporate governanceCorporate governance issues are not new or unique to China. They exist in every emerging market and developed market. Think about the recent global scandals such as Facebook’s leak of personal data, Samsung’s bribery issues resulting in the heir going to jail, the collapse of Lehman Brothers and AIG during the financial crisis, etc. The Chinese government and regulators have been stepping up efforts to ensure that a fit and proper corporate governance is in place for listed companies. A cumulative voting mechanism to protect minorities’ interests, a minimum proportion of independent directors and International Financial Reporting Standards have all been gradually introduced in the past. Even now, one could argue that corporate governance in China is no worse than in other EM markets, and is in fact getting better as the government has made tackling the issue a priority. Increasing foreign ownership can only help push the market in the right direction. Conclusion: Partial Myth5. A-shares are mainly SOEs whose interests do not align with shareholdersA-shares are mainly SOEs whose interests do not align with shareholdersAmong 3,608 listed companies in Shanghai and Shenzhen, there are only ~1,000 central or local SOEs, accounting for less than one-third of the total number of A-shares. Investors have plenty of choice when putting their money in non-SOE companies. That said, it is also overly simplistic to say that all SOEs are in bad shape, mismanaged or over-geared without proper due diligence. Corporate governance goes hand in hand with SOE reform, a priority for the government going forward. Some SOEs like Gree and Shanghai Auto already deliver good operating results and manage to outperform the broader market. Effective screening tools for selecting the right stocks is important, regardless of their SOE or non-SOE status. For more info on our approach, click here. Conclusion: Myth6. A-shares add volatility only, without producing any long-term performanceGiven the nature of emerging markets, China A-shares do have higher volatility compared to most developed markets such as the US, Europe and Japan. However, A-shares have also outperformed those markets over the last ~15 years. So while the volatility is higher, so too is long-term return, in line with modern portfolio theory. More recently, volatility has decreased and we expect it to trend down as the market becomes more institutionally driven. Besides, looking at volatility only without considering correlations is a largely irrelevant asset allocation exercise. Adding A-shares into one’s portfolio helps increase diversification due to the low correlation of A-shares with other markets. Conclusion: MythSource: Bloomberg, Premia Partners, as of December 31, 20177. Renminbi is too volatile and always depreciatesFollowing the internationalization of the renminbi, the IMF voted to designate the renminbi as one of several main world currencies, thus including it in the basket of special drawing rights. An ongoing renminbi devaluation for the sake of increased exports is a misleading accusation. China is in the middle of transforming its economy from being export-oriented to domestically focused. Currency depreciation does not make long-term sense in that context. This is one of the reasons why the basket of currencies maintained by the State Administration of Foreign Exchange has been expanded to all their trading partners, rather than just USD. But all these points pale in comparison to an even simpler way of proving this concern false – the data. The renminbi appreciated by more than 7.4% in USD term in the past 12 months. Conclusion: MythSource: Bloomberg as of May 21, 20188. Rational investors should steer clear due to A-shares’ massive retail participation90% of daily turnover comes from individual investors in China A whilst less than 10% in the US. This is true. Similar to individual investor behavior in developed markets, retail flows in China lean toward stocks that are small, growth biased, lottery in nature and high beta, etc. These elements lead to higher volatility and unpredictability. That said, retail investors in China offer opportunities for professional investors to outperform, just like in developed markets. Inefficiency and behavioral errors create opportunity for capturing alpha, both through capable active management and through well-researched smart beta strategies. Conclusion: Partial MythSource: Rayliant Global Advisors, Premia Partners as of May 31, 20179. A-shares investment requires quotas and other complex processesForeign investors used to invest in China A through either Qualified Foreign Institutional Investors (QFII) or Renminbi QFII. Each institution had to apply for its own quota to trade physical A-shares. But as Chinese regulators decided to open their capital markets to global investors, the Stock Connect program was introduced in November 2014. It is a more flexible scheme that does not require individual investor quotas. No applications or complex processes are required – a total of 1,485 A-shares listed in either Shanghai or Shenzhen is available for trading through Stock Connect on the Hong Kong Stock Exchange. Conclusion: Myth10. There isn’t enough research coverageThere are 3,608 A-shares listed in either Shanghai or Shenzhen with most of the names not recognizable by many foreign investors. Given the above concerns, it’s understandable that global investors wouldn’t be satisfied with a passive approach and prefer active management instead. But with so many stocks, it’s easy to get lost without investing material resources in research. This is where Premia can step in and help. 7 months ago we built two solutions to tap into different segments in China whilst capturing excess return. The Bedrock Economy strategy (2803 HK) focuses on stocks that are the backbone of the Chinese economy whilst the New Economy strategy (3173 HK) taps into the future growth story of China including consumption upgrades, technological advancement and aging population. Both strategies not only focus on those two different aspects of China A-shares, but then screen each universe to identify stocks that offer long-term excess return. Bedrock focuses on value, quality, low size and low volatility companies while New Economy prioritizes asset-light, quality and R&D focused firmsComparing the latest disclosure of the 234 index constituents for MSCI China A Inclusion, the following is an analysis of index correlation, stock and sector overlap with the underlying indexes of Bedrock Economy and New Economy. Bedrock Economy (2803 HK) has a much higher correlation and more stock overlap with MSCI China A Inclusion. If you’re aiming for excess return vs MSCI China A Inclusion but don’t want to deviate significantly from that benchmark, the 2803 HK would be the right choice. On the other hand, New Economy (3173 HK) offer a drastically different exposure, focusing more on Information Technology, Consumer Discretionary and Healthcare sectors. If you’re aiming to steer clear from large-cap SOEs and to prioritize China’s future rather than today’s economy, than 3173 HK may be the exposure for you. Conclusion: Partial MythSource: Bloomberg as of May 21, 2018Out of 10 common reasons for not investing in A-shares, we score 6 as complete myths, not based on current facts about A-shares. The other 4 are partial myths, where choices of data drive the outcome or where the facts are true, but the implication isn’t. In our view, gone are the days when A-shares as a market can be ignored. Investors need to allocate to A-shares in their portfolios, or risk decreasing their diversification and leaving opportunities for alpha on the table.Regards,David

May 28, 2018

Much has been made of the “copied in China” story over the last 1-2 decades. That perception is starting to shift, but ever so slowly with a lot more to be done. In this note, I take a look at the status of innovation in China, China’s ranking vs global peers, and how our ETF, 3173 HK, takes aim directly at China’s R&D and innovation companies (product page here and overview page here).

May 16, 2018