One of the oldest investors in Chinese onshore markets receives local AFSL approval 

One of the earliest quantitative investors in China’s ‘A’ shares market, Mingshi Investment Management, has just been granted an Australian Financial Services Licence (AFSL) to operate in Australia.

Mingshi, which takes a quantitative approach to investing in China, will now also proceed to launch two Australian-domiciled funds for institutional and other sophisticated investors targeting China’s onshore markets of the Shanghai and Shenzen stock exchanges.

The Shanghai-headquartered Mingshi is a pioneer in quantitative investing among mainland Chinese stocks and has both onshore (mainland China) and offshore (Cayman Islands) funds.

It opened an office in Sydney earlier this year.

Australian born Lewis Prescott, Partner and International CEO at Mingshi, said “Mingshi brings global institutional best-practice in portfolio management to the China A share market.”

Mingshi was founded in 2010 by two Wharton academics, Prof. Yu Yuan and Pro. Robert Stambaugh and today has one of the largest quantitative research teams in China with 60 investment professionals dedicated to research, trading, risk management and technology. It had US$3 billion (A$4.215bn) in AUM as of 31 December 2021.

“Our approach is built on a foundation of academic rigor and research,” he said today. “We believe that to succeed in China’s capital markets you must combine the best of fundamental financial theory with the latest in artificial intelligence. This research commitment to both fields is a key differentiator for Mingshi,” said Founder Professor Yu Yuan.

Mingshi’s global China A strategies include:

• China A Market Neutral (Optima) strategy designed to perform across all market conditions targeting zero-net and low correlation with China and global equity beta; and
• China A Long Only (Maxima) strategy – benchmark-relative long-only strategies built on Mingshi’s proprietary quantitative research and best-in-class risk management framework.

As at December 31, Mingshi’s Optima market-neutral fund posted a 33.3 percent gross returns for the year (one of the best performance China focused market neutral funds in 2021). The long-only Maxima fund generated 19.4 percent gross returns for the year, against 4 percent for the MSCI China A Onshore Index benchmark.

Following obtaining its AFSL here, Mingshi will also soon offer:

• n AUD China A Market Neutral strategy, and
• AUD China A Long Only fund.

Mingshi is also in talks with potential investors to start a China A green-focused fund investing in stocks on the Shanghai and Shenzhen stock exchanges.

Exceptional opportunities

Mr Prescott added: “The onshore China A-share market offers exceptional opportunity for institutional and other sophisticated investors which does not exist in any other major market.”

He noted Shanghai’s stock exchange, which began operations in December 1990, had now grown to become the second largest in the world and accounts for some 5% of the world’s market capitalisation.

“This rapid capital growth has created a unique and unprecedented investment opportunities for those professional investors dedicated to understanding the participants, factors and market-structure that made the evolving China onshore markets unlike any other capital market.”

Mr Prescott added: “The factors, products and sentiment that drive the Chinese onshore market are very different to the drivers of equity prices in developed markets. As such, local managers – such as Mingshi – that combine the best of on the ground local academic and applied research, with world class trading and risk management arguably have an edge right now.”

“Global investors, including institutional and super funds in Australia are increasing their allocations to China and they need high quality managers.

“Despite the geopolitical headlines around Australia-China or US-China relationships, from a capital allocation point of view, we are still seeing incredible interest”

Michael Negline, Mingshi’s Australian Country Head and Director, added: “We are pleased to receive a local licence and look forward to launching local funds for local sophisticated investors.”