Asian markets are picking up steam. But riding the momentum is not a long-term strategy. To make sustained gains, the United Asia Fund uses a combination of traditional and innovative techniques

Riding the China rally

After three years in the doldrums, Chinese stocks are staging a comeback fuelled by overseas fund flows. The CSI 300 index is up 8 percent this year, nearly on par with the S&P 500. And there are a few good reasons to hope that the current rally is not just another false start.

• China’s economy is stabilising with a solid first-quarter performance this year of 5.3 percent ¹
• Manufacturing activity is expanding, with the Caixin/S&P Global manufacturing PMI registering 51.4 in April², the fastest pace in over a year
• China has increased support for its property sector to the tune of US$42 billion³, by helping to soak up unsold apartments, lower mortgage rates and reduce down-payment ratios

Good news for rest-of-Asia

Elsewhere in Asia, stock markets in Taiwan, India and South Korea are also in the green this year, buoyed by positive developments on the economic front.

• Taiwan’s economy grew 6.5 percent in the first quarter of 2024⁴, marking the fastest pace of growth in almost three years
• India is poised to be the world’s fastest-growing major economy this year, with the World Bank forecasting growth of 7.5 percent in 2024⁵
• South Korea's exports rose for a seventh straight month in April, raising the prospects for a robust pick-up in economic growth this year

Stock picking is crucial

UOB Asset Management’s (UOBAM) AI-Augmentation framework is designed to select stocks that have the highest return potential across Asia. This form of active management differs from an index-hugging strategy, which relies on buying stocks that feature in Asia indices.

Such stocks are typically large cap and high profile, and will see a rush in demand when macroeconomic factors look positive. This means their upside potential tends to be limited, and their fortunes fall away once macro data starts to disappoint.

The AI-Augmentation framework is less sensitive to such momentum-driven factors. Instead, an AI-powered engine processes vast amounts of data in order to shortlist stocks from across the Asia universe. These stocks are then further assessed by human analysts to arrive at a portfolio of stocks with the highest potential to outperform.

This strategy takes into account, but is not dependent, on prevailing market conditions. Whether or not the China rally continues, the framework searches for alpha opportunities without any specific style or other biases.

The United Asia Fund

The United Asia Fund (the “Fund”) is UOBAM’s flagship AI-Augmented fund. It seeks to achieve long term capital growth mainly through investing in stocks across Asia (excluding Japan). Leveraging our analysts’ deep local knowledge + AI-generated shortlists, the Fund is rated five-stars by Morningstar in the category of EAA Fund Asia ex-Japan Equity⁶. It is in the top quartile of its peer group in the 3-year category, and has managed to offer high returns for average risk⁷.

Fig 2: Fund returns (%)

The Fund does not track the market closely, but an analysis of the Fund’s monthly returns relative to the index does reveal some interesting trends. For example, since the introduction of the Fund’s AI-Augmentation framework in October 2020, it has outperformed the index 1.4 times more often than underperformed, and monthly returns on the upside were 1.3 times higher than on the downside⁸.

Looking at the post-Covid period since January 2023, it is also clear to see that positive months have far outweighed negative months. During these periods, the Fund’s positive monthly returns reached a maximum of around 6 percent⁹.

Fig 2: Monthly excess returns (daily rolling) Oct 2020 – Apr 2024

Source: Morningstar, as of 30 April 2024

Diversified regional exposure

At the start of the year, the Fund was finding higher return potential in stocks from India and Taiwan, including companies such as Bharat Petroleum, Gail India, Arcadyan Technology and Tung Ho Steel Enterprise. Indian and Taiwanese stocks made up more than half of the Fund’s portfolio in January and February 2024.

Since then, more Chinese stocks with good upside potential have been identified, and the Fund has taken profit from several India stocks. China is now the Fund’s largest country allocation and four of the Fund’s top 10 holdings are now Chinese stocks.

Fig 3: Fund country allocation changes (%), Jan – Apr 2024

Fig 4: Fund top 10 holdings, as of 30 April 2024

If you are interested in investment opportunities related to the theme covered in this article, here is a UOB Asset Management Fund to consider: United Asia Fund Awarded Outstanding Achiever for Asia Pacific ex-Japan Equity at Benchmark Fund of the Year 2023 awards About the Fund Fund Commentary (April 2024) You may wish to seek advice from a financial adviser before making a commitment to invest in the above fund, and in the event that you choose not to do so, you should consider carefully whether the fund is suitable for you.