NEWS | APAC
Credit Suisse: China, ESG in spotlight (part 1) The Swiss bank is working to bring China equity structured products globally as these assets accounted for nearly half of the assets managed on its SparkTrackers platform. with stocks categorised according to their market capitalisation. Two indices over various share classes are available tracking the basket, which went live on 31 December 2020 and 26 April 2021, respectively. They are re-balanced on a monthly basis.
The proprietary issuance platform for tracker certificates on thematic indices currently has assets under management (AuM) of approximately US$800m. “The demand for structured products on China equity has remained strong overall since 2020 [as] China is opening up to the world,” said Clement Florentin, head of investment solution Asia ex-Japan & coglobal head of QIS distribution structuring at Credit Suisse (pictured). “The increased incorporation of China equity to major benchmarks has also been driving capital flows to the region.” At SparkTrackers, a total of 22 indices have gone live since September 2018 across 14 themes comprising Asia online gaming, electric vehicle (EV) power, 5G Frontier, China healthcare, cloud computing, rising China brands, post-pandemic recovery, sustainable China, accelerating economy spark, ESG top pics, CS top pics, hydrogen, PremiaTracker Southbound and future food. Among them, the Sustainable China Index stands out, being deployed with a quantitative and systematic strategy. The basket selects around 70 out of 100 companies in renewable energy, smart grid and environmental protection spaces, including both producers and suppliers,
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“China equity is less correlated to developed and emerging market equity, and has significantly outperformed during the Covid crisis,” said Florentin. “Our China-related solutions are able to monetise some of the repurchase agreement we get on China names, potentially passing it to clients through outperformance transactions.” Primarily manufactured in Apac, the open-ended delta one certificates are exclusively issued and distributed by Credit Suisse or its affiliates. The investment bank has also introduced the China Southbound Long Short Index to capture the opportunities arising from the opening of China’s capital markets. Developed by its quant research team, the offering aims to monetise the premium of the Southbound programme, which allows qualified Chinese investors to access eligible Hong Kong shares. “The offshore stocks purchased by onshore investors tend to outperform,” said Florentin, adding that those investors show unique investment preferences and likely possess an information advantage. China onshore investors hold 10.7% of Hong Kong free float market cap and account for over 20% of turnover in Hong Kong SAR, according to the bank’s estimates. The Swiss bank invests in stocks with large southbound flows by adopting a ‘glass-box’ machine learning approach, in which the user can see how the model works and reaches its decision by following the steps from inputs to outputs in contrast to ‘black box’.
Launched in June 2015, the index has delivered 11% compounded annual growth rate with 14% maximum drawdown and 0.9 Sharpe on a historical backtest. “The index has been delivered to retail and distribution clients through a variety of products including principal-protected notes and warrants, alpha and delta-one certificates,” said Florentin. Following the most recent launch on the future food theme, which once took the SparkTrackers’ AuM to US$900m in August 2021, Credit Suisse plans to introduce a brand-new theme in the coming two months. AMCS In addition to the tracker certificates, Credit Suisse Asset Management is running an actively managed certificate (AMC) on the China Connect, which is one of the "most successful mandate solutions” investing in both the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, according to Florentin. “The AMCs managed by asset allocators in Asia are increasingly delivered globally,” he said. Manufactured in Hong Kong SAR, the China Connect AMC has been traded globally on Quantum – the bank’s proprietary platform to create and manage bespoke indices across equity, fixed income, commodity, foreign exchange and quantitative investment strategies (QIS) on a discretionary basis. SparkTrackers also leverages on Quantum allowing content, execution and delivery services. Compared with other investment solutions desks in Apac, which primarily focus on transaction origination and content distribution, the investment solution group (ISG) team at Credit Suisse in Apac also specialises in origination and manufacturing while additionally acting as a platform, noted Florentin.
