12 August China

Greater China: Materials Rotation

45 Active Greater China Funds, AUM $17bn.

Greater China Materials

Greater China managers are increasing allocations to the Materials sector. Part of a general rotation out of the Information Technology sector, active managers are buying in to selected names, led by IMEIK Technology Development Co, ENN Ecological Holdings and Baoshan Iron & Steel. Versus the benchmark, Greater China managers are becoming more comfortable positioning themselves overweight.

Time-Series & Sector Positioning

Ownership in the Materials sector continues to rise. A 7-year high of 84.4% of managers now have exposure to the sector, pushing average weights towards the top end of the decade-long range of 4.90%. Versus the SPDR FTSE Greater China ETF benchmark, active funds are overweight +0.69% on average with a near record 46.7% of funds overweight the index proxy.

Changes over the last 6-months highlight a significant rotation out of the Technology sector, with Materials one of the beneficiaries alongside Real Estate, Utilities, Energy and Consumer Staples. All 4 of our ownership metrics moved higher of the period, with +6.7% of funds opening new exposure to Materials stocks and +8.9% moving to overweight.

Fund Holdings & Activity

Materials fund weights are clustered around the 2.5-5% level, though a group of Growth investors, led by Yuanta New China Fund (24.2%) and Neuberger Berman Greater China (15.5%) are pushing up the averages with 10%+ allocations in the sector.
Fund level changes between 01/31/2022 and 07/31/2022 are led by a 6.40% weight increase by HSBC Greater China and new positions from Franklin Templeton SinoAm China (+6.09%), Hereford Bin Yuan Greater China (+4.57%) and Renaissance China Plus (+0.51%).

Stock Holdings & Activity

The most widely held stock in the sector is Yunnan Energy New Material, owned by 24.4% of funds at an average weight of 0.66%. A further group of 6 stocks, led by Beijing Oriental Yuhong Waterproof Technology and Wanhua Chemical Group are well represented in Greater China portfolios. There are some high conviction positions in the sector too, with UPAMC Great China’s 7.15% holding in Yunnan Energy topping the list.
Sector allocations were partly driven higher by funds opening positions in IMEIK Technology Development Co, as 6.67% of funds opened new positions between 01/31/2022 – 07/31/2022. ENN Ecological Holdings and Baoshan Iron & Steel were among the larger individual fund openings, whilst Greater China investors scaled back exposure to China Jushi Co and Sinoma Science & Technology Co over the period.

Conclusions

Materials allocations in active Greater China funds have benefited from a significant rotation away from the Information Technology sector in recent months. But even with these moves higher, Materials sit way down the pecking order of sector allocations as the 8th most widely held sector and avoided by 15.6% of investors. There is significant scope for investment levels to increase from here.

Relative to benchmark, a growing number of managers are comfortably being overweight and Materials sits alongside Industrials and the Consumer sectors as a strategic overweight, offsetting underweights in the Financials, Technology and Communication Services sectors.

Encouraging for the sector is the spread of potential stock investments available to managers, with 7 companies attracting a decent investor base and the sector not dominated by a single holding, unlike some others.

See below for more ownership information on Yunnan Energy New Material, Beijing Oriental Yuhong Waterproof Technology and Baoshan Iron & Steel. Please click on the link below for the extended report on Materials exposure among active Greater China funds.

Click on the link below for the latest data report on Materials positioning among active Greater China funds.

Stock Profile: Yunnan Energy New Material Co.

Stock Profile: Beijing Oriental Yuhong Waterproof Technology Co.

For more analysis, data or information on active investor positioning in your market, please get in touch with me on steven.holden@copleyfundresearch.com