How Ninety One is rethinking China equity allocations

It requires a wider but laser-focused lens to achieve durable and differentiated exposure to China in a new era of structural change, policy evolution and behavioural volatility. At the same time as accessing an opportunity set of around 1,000 stocks – across domestic A-shares and B-shares, Hong Kong–listed H-shares and US-listed ADRs – investors also need to be selective. Capitalising on China’s equity market is not simply about breadth; it is about precision. Finding the best ideas The landscape of China stocks is segmented. Offshore markets, particularly Hong Kong and US listings, are more heavily weighted towards internet and platform companies. Yet this means they also tend to be influenced by macro sentiment and geopolitical narratives. By contrast, the onshore A-share market – one of the largest and most liquid globally – is dominated by domestic retail investors and offers broader exposure to sectors such as consumption, industrials, advanced manufacturing, healthcare and materials. These structural differences create both diversification and inefficiency. Dual-listed companies, in theory, should trade at similar valuations across A- and H-share listings. In practice, meaningful valuation gaps frequently emerge. As a result, Ninety One’s All China approach includes all listings to be able to select the best value, liquidity and risk characteristics, while side-stepping structural blind spots inherent in single-market strategies, said Wenchang Ma, portfolio manager at Ninety One Hong Kong. For allocators concerned about concentration risk in offshore mega-cap technology, the All China approach also provides a more economically representative exposure. “It better reflects the underlying composition and evolution of the Chinese economy,” added Ma (pictured). Being more balanced A wide lens also helps investors avoid the pitfalls of many China portfolios, which are effectively expressions of offshore technology beta. “Our approach differs,” explained Ma. “We apply the same bottom-up framework across the full Chinese equity universe, allowing sector exposures to emerge as a residual of stock selection rather than benchmark concentration.” By focusing on mispriced rates of change in key business drivers, rather than on market capitalisation or benchmark weights, the resulting portfolio tends to maintain balanced exposure across value, growth, quality and momentum characteristics. “The outcome is a more diversified and economically representative exposure to China’s evolving growth model,” Ma said. The onshore market, in particular, provides access to companies embedded in domestic supply chains and internal demand, such as: - Consumer brands benefiting from consumer ‘premiumisation’ - Industrial and automation leaders supporting advanced manufacturing. - Healthcare innovators serving a rapidly evolving domestic market. - Businesses aligned with energy transition and decarbonisation initiatives. - Select state-owned enterprises improving capital discipline amid ongoing reforms. Since many of the companies in these sectors generate the majority of their revenues within China, they are less sensitive to global capital flows. Harnessing behavioural inefficiency Amid the unique characteristics of China’s markets, there are also notable investor biases which cannot be ignored. Onshore, retail participation can amplify overconfidence, herding and anchoring. Offshore, sentiment is often driven by global macro positioning. Together, these dynamics create persistent mispricing and regime-driven volatility. In response, Ninety One has designed and applies a 4Factor process to navigate and exploit these conditions. Firstly, it is deliberately style-agnostic, maintaining balanced exposure across quality, value, operating performance and investor attention. Secondly, the framework combines systematic insight with fundamental judgement, to rank opportunities across the universe, helping to identify behavioural dislocations. Thirdly, the focus is on rates of change over a 12- to 24-month horizon, based on the fact that markets often underreact to improving fundamentals and overreact to short-term noise. Each factor plays a distinct role: - Quality – to capture underappreciated addressable market growth and persistent returns that can compound over time. - Value – to identify compelling valuation with tangible catalysts, often in cyclical industries where pessimism is over discounted. - Operating performance – to focus on revisions to forecast estimates and positively trending key business drivers, where markets may underreact to improving fundamentals. - Investor attention – to recognise that sentiment and technical momentum can confirm and accelerate pricing anomalies. “It is the combination of these lenses within a disciplined, repeatable framework that provides a systematic edge, while maintaining balanced exposure and ensuring alpha is driven predominantly by stock-specific risk rather than factor timing,” said Ma. Focus and discipline In short, the Ninety One All China approach is anchored in a belief that the primary source of alpha in China remains a bottom-up stock selection. “More than a decade of performance confirms that stock selection has been the main component of the team’s outstanding performance,” explained Ma. The All China approach reinforces this edge by expanding dispersion. Different investor bases, liquidity pools and sector biases across onshore and offshore markets create differentiated inefficiencies. And a broader universe increases the probability of identifying mispriced opportunities and reduces dependence on any single sentiment regime. Flexibility across listings also supports risk management, added Ma, by broadening the opportunity set and diversifying behavioural and liquidity exposures through the cycle. In a market as complex and dynamic as China, such a structure coupled with a disciplined process are essential. By combining full-market access with a proven 4Factor methodology, the All China approach seeks to convert dispersion and volatility into a consistent source of alpha, while providing a more complete expression of China’s evolving growth story.