All roads lead to Rome, says the proverb. China’s new Silk Road may well pass through the Italian capital but not only. In Aman Kamel’s view, the gigantic $900bn Silk Road redevelopment plans laid out by Chinese president Xi Jiping will benefit to European companies.
Kamel (pictured) is the portfolio manager of the Synchrony (LU) Silk Road Zone Stocks fund launched last September by the Banque Cantonale de Genève (BCGE). The fund’s particularly innovative feature? Being solely focused on companies that are involved in China’s ‘One Belt, One Road’ project.
The “strong potential” of the Silk Road redevelopment plans has convinced BCGE to propose a dedicated thematic fund after a year working on the investment philosophy and process.
The quantitative research is led by Kamel on a current universe of 220 companies and fuelled with Bloomberg, Internet and think-tank data. A bottom-up fundamental approach is applied and as a high-conviction fund, it is currently comprised of 38 stocks with a monthly review of the fund positioning and a maximum of 5% allocation per position.
“The approach of the fund is global and diversified region and sector-wise. We invest in quality companies that are taking or will take part to this huge project. We keep an overweight stance towards industrials currently because infrastructure is core to the redevelopment of the Silk Roads. Some 60% of the portfolio is invested in industrials.
“Though we did not want to shy away from other sectors as we believe they will play a role in the future of the Silk Roads and it is important to initiate some positions which may be increased over time given the Silk Roads plans are set to be fully achieved after 2050. The Silk Roads theme teems with sub-themes such as aviation, robotics or water,” explains Kamel to InvestmentEurope.
Not a Chinese equity fund
If the current top position in the fund remains China Railways, the portfolio manager pinpoints BCGE did not want the fund to turn into a Chinese equity strategy as it would carry some specific risks.
“It is right to point out a number of Chinese companies will benefit from deals completed under ‘The One Belt One Road’ project. However, US, European and Swiss companies could bring a specific expertise that Chinese firms cannot. They have that slight technology edge compared to the Chinese companies. For instance, General Electric and Caterpillar are among players which will take part to the Silk Roads project,” says Kamel.
As the inclusion of China A-shares in the MSCI EM Index takes place progressively since early June, the fund manager says he has targeted around 60 appealing stocks traded in Shanghai or Shenzhen that could potentially be eligible to the fund.
“Nevertheless given the current size of the fund, I did not want to invest in China A-shares for the moment, because fees remain extremely high and could cost much to the fund. I need a larger fund size to be able to step in,” he highlights.
Alongside industrials, other sectors invested by the Synchrony (LU) Silk Road Zone Stocks fund encompass materials, telecoms and financials. Two Chinese financials have been picked in the portfolio, the former being Bank of China and the latter ICBC as it has established presence all along the Silk Roads.
Seize the Asian boom
Regarding Russia, Kamel has spotted and analysed three companies located in Russia that could be of further interest but at the moment, the fund does not hold any Russian stock. Looking at an eventual contribution of the African continent to the Silk Road project, Kamel says “a few Egyptian stocks have been monitored but there is a liquidity risk in that market that we cannot afford to take currently. Politics form also a brake there.”
Shall Europe be afraid of the Silk Road? “No, on the contrary, the Silk Roads plans carry a project open to the world from which European companies will definitely benefit, answers BCGE’s fund manager.
“An example is French hospitality group Accor that we hold in portfolio at present. Accor has recently purchased hotel business Movenpick to strengthen its development in the oriental part of the world. The Silk Road initiative will help Accor to really seize the boom that will emerge from the Asian region and result from the project.”
As of end May 2018, the Synchrony (LU) Silk Road Zone Stocks fund, domiciled in Luxembourg and Ucits-compliant, tallied $5.5m (€4.7m) in assets under management.