China Quant

China Quant

The China A equity market has many of the ideal characteristics including sufficient market breadth, market inefficiencies and low trading costs for quant strategies to add value to investors.

Our edge

Based in Asia, the team has honed its skills in some of the most inefficient and diverse markets.
The team’s constant attention to detail while working with raw and “dirty” data allows them to extract investment signals that are key in Asia, including China.
Highly experienced and stable team with a long history of technology-driven, quantitative investing.
Ability to leverage the full resources, systems and expertise of the Quantitative Solutions team while building our onshore and offshore China quant capability.

Investment Philosophy

Entrenched market behaviours as well as the structure and dynamics of markets give rise to persistent and exploitable market inefficiencies.
A quantitative approach based on factors is the most structured and repeatable means of exploiting market inefficiencies.
The China A-share market has many of the ideal characteristics in which quantitative strategies should flourish.
There are clear signs of different investor behaviours and structured nuances that must be considered and respected by quantitative investors.
We incorporate a proprietary estimate of stock excess returns from underlying factors to exclude stocks expected to underperform.
Factors include valuation, sentiment, quality, profitability and momentum.
We ensure liquidity, while minimizing negative effects of transaction costs.
We know that markets are dynamic and continual innovation is necessary to maintain strategy performance.

Investment Process

Seek high quality stocks
We seek high quality and attractively-valued stocks that are efficiently profitable, have an improving growth outlook and that are gaining investor attention.
Proprietary investment process
We believe our proprietary investment process, grounded in our fundamental understanding of factor premiums, enables us to better exploit the behavioural biases that drive market inefficiencies.
Quantitative strategies
Our quantitative strategies work from the bottom up by first scoring each stock in the investible universe based on the factors that we have selected. The alpha score that we derive is our estimate of each stock’s future return relative to other stocks in the same country-industry group.
Construct portfolio
From that estimate, we construct portfolios using mean-variance optimisation and look to maximise the expected risk-adjusted return of the fund relative to the benchmark, taking into account the expected impact of transaction costs. When weighting factors, we acknowledge the strength of factor returns and the volatility (and correlation) of factors within peer groups (country/industry).
Returns
The improvement in returns that can be achieved through our type of factor investing over the related market capitalisation-weighted indices are self-evident.

ESG

We are committed to make the assessment of ESG factors an explicit part of our research process and have established a dedicated research stream for ESG that aims to:

Identify and validate ESG alpha factors that improve the returns of our strategies.
Identify and validate ESG risk factors that improve the risk of our strategies.
Explore potential ESG-focused products using existing strategies we manage.
Search for new ESG and alternative datasets that may aid our research.

The team also employs a proxy voting policy to add value and protect clients’ interests as stakeholders. We believe that quantitative portfolio managers should dedicate their time and effort to managing portfolios and conducting investment strategy research, rather than conducting research in connection with the voting of proxies. As such, an independent third party, Institutional Shareholder Services, has been engaged to provide research and recommendations for when to vote against resolutions.

Today, Eastspring Investments manages more than USD29 billion (as at 31 October 2019) across Chinese equities and bonds. Learn more about our experience and expertise in China