PREMIA POINT OF VIEW

PREMIA POINT OF VIEW

Can a portfolio have a lower volatility then its constituents?

  • Alex Chu

    Portfolio Manager

In the last article, we have seen that Gold has a low correlation with the CSI Caixin Rayliant Bedrock Economy Index. According to Modern Portfolio Theory, we could construct a portfolio from Gold and Bedrock Index, which would have lower volatility than investing solely in either Gold or Bedrock Index. Using the historical data since July 2013, the theory suggests that we invest in around 30% in Bedrock and 70% in Gold to achieve the lowest volatility. Assume we invest in this allocation since July 2013 and rebalance monthly, the portfolio’s volatility would be around 11.0% annually, lower than Gold’s 13.8% and Bedrock’s 22.0%. However, this method has a look-ahead bias. So, what if we invest in Bedrock Index and Gold equally? The annual volatility would be 12.3%, which is still lower than Gold and Bedrock. 

Feb 24, 2020


Gold is a good diversification to a China-focused portfolio

  • Alex Chu

    Portfolio Manager

Modern Portfolio Theory suggests that an investor can reduce the portfolio risk by adding constituents which have low correlations to the existing holdings. If the investor’s portfolio is loaded with China equities, Gold seems to be a good candidate to diversify the risk. Over the period from July 2013 to 2019, Gold showed negative correlations with different China equities indexes. Gold is most uncorrelated with CSI Caixin Bedrock Economy Index with a value of -0.1. If we look at the rolling 36-months correlations, we can see that the correlations were not always below zero, and have shot up to above 0 in 2019. That said, the correlations were still at a low level, making Gold a good diversification to a China-focused portfolio. Also, we can see that Bedrock Economy Index did not always have the lowest correlation with Gold. During 2018, CSI Caixin New Economic Engine Index overtook Bedrock Economy Index and became the least correlated with Gold. By the end of 2019, Bedrock Economy Index’s and New Economic Engine Index’s correlations with Gold are still the lowest among other China equities indexes.

Feb 21, 2020


Work and Learn through Office Apps amid China’s Virus Lockdown

  • Vicky Hsu

    Analyst, Strategy & Analytics



Alibaba-backed DingTalk is the most downloaded free app in mainland China’s iOS App Store, followed by Tencent Conference. WeChat Work, which is also from Tencent, ranks No. 4 as of 19th February. This is also the very first time that business-categorized app won first place in iOS App Store. Their new-found popularity offers China’s twin internet giants a chance to stake out an unclaimed multibillion-dollar arena.

Originally designed for China’s white-collar workers, these office apps adapted to the virus outbreak by offering the service to help educate primary and middle school teenagers. DingTalk rolled out a slew of new features for classroom settings, including live-streaming lessons that can have as many as 302 participants and an online testing and grading system. At least 50 million students from elementary to high school across 300 cities in mainland China had signed up for DingTalk’s online teaching programs conducted in tandem with local education authorities as of 10th February. China’s online education has been booming in recent years, with revenue estimated to have reached around $36 billion in 2018, and is expected to more than double in 2022, according to iResearch.

The coronavirus will end someday, but it is just the starting point for China’s Digitalization to go viral across various fields.

Feb 20, 2020


Which sectors did well in Asia year-to-date?

  • David Lai , CFA

    Partner, Co-CIO


Asian equities carried on their strong momentum from last year and performed well at the beginning of this year until the coronavirus outbreak hit the market.  The overall market was down by 0.6% so far with communication services, information technology and healthcare managed to record positive returns.  There are a few reasons for them to outperform: (1) online entertainment, e-commerce, and social networking are in strong demand with people stay home more; (2) the recovery of semiconductor remains on track with strong orders in foundries and resilient price uptrend of memory chips; (3) pharmacy, medical services and equipment stocks are well supported given their defensive nature and a potential boost in sales.  Coincidentally, these three sectors accounted for 85% weightings in our Asia Innovative Technology ETF (3181.HK), explained the strong outperformance of nearly 5% this year.

Feb 19, 2020


China’s Internet in 60 seconds

  • Vicky Hsu

    Analyst, Strategy & Analytics

As you may notice, the Chinese Single’s Day sales has grown at an exponential rate over its decade long history. 2019’s combined U.S. Black Friday and Cyber Monday sales for all merchants totalled about $17 billion, while Single’s Day alone generated $38 billion US dollar sales in 24 hours.

Deep dive into a shorter timeframe - What’s happening in 60 seconds on China Internet? Actually, more than you can imagine! Here are just some of the most impressive nuggets on what has happened in China’s digital online world in just 60 seconds: 42m voice messages sent though messaging app WeChat, 8.3m videos watched on video-sharing social platform TikTok, 8k orders made on e-commerce platform Pinduoduo, RMB 8.6m transacted on e-commerce platform Tmall, RMB 15m paid through digital payment app Alipay, 56k drivers picking up passengers through ride hailing app DIDI, etc.

Feb 17, 2020


ETF Flows in Jan 2020

  • Alex Chu

    Portfolio Manager

In the first month of 2020, Equity ETF’s inflow has slowed down to around 31 billion USD, less than half of the December’s inflow, while Fixed Income ETF’s inflow remained at around the same level at approximately 22 billion USD. Investors were cautious about allocating money to Equity ETFs as the outbreak of the coronavirus in China offsets the optimism in the phase-one trade deal. Commodity ETFs have reversed the two-month outflows streak and had an inflow of more than 3 billion USD as investors were piling into gold for safe havens. According to Bloomberg, the ETF holdings of gold has reached a record high of more than 83 million ounces in February 2020. As Zhong Nanshan, China’s government top medical adviser, predicted that coronavirus epidemic might peak in February, investors may swing back to the risk-on mode, and Equity ETFs may resume its inflow momentum in February. 

Feb 13, 2020


US Treasury Yield Curve shifted down and flattened

  • David Lai , CFA

    Partner, Co-CIO


The US Treasury yield curve shifted down significantly if comparing the ones 1 month ago, 3 months ago, 6 months ago, and 1 year ago, indicated that investors switched on their flight to quality mode again.  Instead of seeking higher yielding instruments, investors are back to US Treasuries for lower credit risks and stability.   The yields compressed over 100 basis points over the past 12 months, or about 30 basis points over the past 3 months.  The recent flattening move highlights the volatile market amid the coronavirus outbreak.  Back to Asia, market behaved similarly with the yield spreads of both high yield and investment grade bonds picked up from 5 to 50 basis points.  Our Hong Kong listed Premia US Treasury FRN ETF (3077/9077/9078.HK) now offers a decent yield of 1.63%, the highest among Treasuries ranging from 1-month to 10-year.  It can be considered as a solid cash parking vehicle if investors want to reduce their portfolios' risks.  

Feb 11, 2020


Buy on dips or sell on dips?

  • Larry Kwok , CFA

    VP, Sales & Distribution


While the spread of 2019-nCOV has no signs of slowing down in the near term, should you stay on the sideline to wait till the situation improves or start accumulating China A-shares on dips? Friends of Premia should know we’re on the bull camp and is a strong believer that pandemics/epidemics have had little discernible impacts on markets (click here if you missed Say Boon’s write-up) and thus creates a very good entry point. Our logic is simple: 1) we believe Chinese equities were undervalued; 2) Chinese equities have been in a gently rising channel since middle of last year; 3) markets will likely resume their prior trajectories later. The big question is when is the best time to act? With surging number of new confirmed cases during the CNY holiday, it’s reasonable to deduce foreign investors to dump A-share when the market re-opened. But the fact is actually different - foreign investors were net buyers of A-shares through Northbound Stock Connect when the market resumed trading on Feb 3, 2020! In other words, bargain hunters have started putting money to work when they saw a lot of bad news reflected on market prices. For those who have been waiting for buy on dips opportunity to increase China allocation, now is the right time to take a look at our China A-share growth strategy China New Econ (3173 / 9173 HK) and value strategy China Bedrock Econ (2803 / 9803 HK)!


Feb 7, 2020


Impact of coronavirus to China market

  • David Lai , CFA

    Partner, Co-CIO


It may seem too early to know exactly how the current coronavirus outbreak evolves in the near term and it is challenging to estimate the potential impact.   Investors, however, always have to think forwardly and make probable assumptions in order to make the right investment decision.   Taking the prior SARS epidemic in 2003 as a reference would be a good start.  Back then, the overall effect of the outbreak to the stock markets was rather subtle and even looked like a non-event in a hindsight.  Between the formal confirmation of SARS virus in Guangdong in early February and the significant decline in newly reported infected cases in mid-May, China A-share went up by 5.1% whilst offshore Chinese equity just fell 1.8%.  If taking this history as a lesson, any sharp sell-off in the market may turn out to be the opportunities to accumulate quality exposure in China market.

Feb 5, 2020


China A-shares far away from overvalued

  • David Lai , CFA

    Partner, Co-CIO




One may wonder if China A-shares are getting overvalued after enjoying a strong rally of over 30% in 2019.  Many investors put emphasis on dividends and dividend yield to determine an appropriate level of valuation. But where do these dividends come from?  Earnings of course.  Earnings are the true long term driver of dividends and stock price.  That's why it is essential to examine how expensive China A-shares are by looking at the spread of market's earnings yield over the 10-year Chinese government bond yield.  This spread can also be seen as the risk premium required for any investor in holding equities over risk-free assets.  Usually the higher the number, the cheaper the stock market is.  The gap now stands at 3.7%, which is exactly the historical average in the past decade.  It reflects that the current market valuation is still at a comfortable level and have potential to go up if the risk-on sentiment remains unchanged in near term.

Jan 30, 2020

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