Finding assets that genuinely diversify a portfolio is becoming increasingly difficult. Juliet Schooling Latter, research director at FundCalibre, explains why Chinese A-shares could offer investors exposure to a market that behaves very differently from developed equity markets.
What matters with diversification is how correlated funds are to one another. The less correlated an asset is, the more value it brings to a portfolio.
Finding assets that are truly uncorrelated is harder in practice than it is in theory. In a crisis, assets can become increasingly correlated.
In 2008, for example, many equity, bond and property funds all suffered heavy losses at the same time – it was a similar story during Covid in 2020.
Correlations are constantly changing and just because something was uncorrelated in the past, doesn’t mean it will be in the future. So building a portfolio that can truly protect takes a great deal of time and effort.
The narrative of the past decade has been about the dominance of US mega-cap technology stocks and the growth of passive investing.
Since 2011, more than $3 trillion worth of assets has moved from active to passive funds* – meaning they now account for a higher percentage of the US stock market than active funds.
This has also helped the growth of some of those big tech players who make up a large part of many popular passive indexes.
To put this into context, in 1990 the 10 largest companies in the S&P 500 made up roughly 19% of the index; by the end of 2025 this stood at 41%, with a host of technology and AI-driven companies now dominating the index and risk profile**.
This month’s fund is an ideal diversifier and a strong candidate for anyone looking for a satellite holding. Allianz China A-Shares concentrates on the stocks of companies that are incorporated in China and that are listed as A-Shares on the stock exchanges of Shanghai or Shenzhen.
The Chinese A-Share market is priced in the Chinese currency and was originally only for Chinese investors, so has a large retail investor base.
The fund is managed by Shao Ping Guan, who has led the strategy since July 2023. He combines a bottom-up, research-driven approach with macroeconomic and policy analysis to identify high-quality Chinese companies capable of delivering sustainable earnings growth.
The investment process emphasises intensive fundamental research, including company meetings and assessment of management quality, competitive positioning, cash-flow generation and valuation.
The portfolio is benchmark-aware but invests with high conviction. The fund typically holds around 60–90 stocks.
The opportunity set is vast – the China A-share market has over 5,000 stocks accounting for 70% of Chinese equities***.
But the big kicker is the diversification opportunity it offers investors. China A-Shares have only 0.34 correlation with global equities in the past 10 years (on a scale where 1 is fully correlated and 0 is completely uncorrelated)***.
This means that A-Shares move in a different direction to global equities two-thirds of the time, in contrast to US equities which have a 0.98 correlation to global equities**.
This lack of correlation continues with the likes of Japan (0.28), Europe (0.32) and even to a degree with Hong Kong Listed China stocks (0.64)***.
You only have to look at the second quarter of 2026 for proof of this divergence. In that period the MSCI China A Onshore Index has delivered returns of more than 15%, while the offshore-dominated MSCI China Index is down almost 10%****.
A-share market construction has changed in the past decade
Shao Ping Guan says historically China A-Shares have been a proxy for the wider domestic economy, but this has changed in the past decade as the weight of the technology sector has trebled and now exceeds the combined weight of the financial, consumer and real estate sectors***.
He says while the China A market does not yet have globally recognised “flagship” names comparable to TSMC or Samsung Electronics, China’s push for technological self-sufficiency has provided a sustained tailwind to its domestic ecosystem.
“The China A tech universe is heavily skewed towards hardware and enabling technologies. This includes the semiconductor supply chain and the “picks and shovels” of the AI investment cycle.
These stocks have experienced – and continue to benefit from – a significant improvement in earnings expectations, supported by valuation re-ratings as investors increasingly factor in the scale of the long-term AI opportunity.
“In contrast, offshore China indices have a very different composition. They remain dominated by internet platforms and e-commerce companies, where earnings trends have been weaker and, in many cases, subject to downward revisions.
This reflects a combination of soft domestic consumption in China, intense competitive pressures, and rising CapEx linked to AI deployment. Overall, we see internet platforms having moved from being a primary engine of China tech growth to a more mature, capital-intensive segment,” he says.
The team believe the current divergence between onshore and offshore Chinese equities reflects a structural shift in market composition and earnings drivers – specifically China’s national AI strategy and creating a “self-sustaining growth cycle independent of global tech cycles”***.
The portfolio remains broadly balanced, with sector allocations kept within +/-5% of the benchmark. As a result, stock selection, rather than sector positioning, continues to be the primary driver of relative performance.
The largest holding in the portfolio at present is Contemporary Amperex Technology, which specialises in the manufacturing of lithium-ion batteries for electric vehicles and energy storage systems, as well as battery management systems.
The top three is rounded off by global mining company Zijin Mining Group and the world’s largest manufacturer of optical transceivers for cloud infrastructure and AI data centres, Zhongji Innolight^.
Performance has picked up markedly in the past 12 months and the fund has now returned 48.9% since Shao Ping Guan took over (vs. 31.8% for the MSCI China A Onshore Index)^^. Ongoing charges stand at 0.93%^.
This fund is run by a very experienced and well-resourced team, which has been operating in the Chinese A-share market far longer than most of its competitors.
We like the ‘Grassroots’ research which gives the team an extra edge in the region. Investors will have to accept periods of volatility, but this is a strong consideration as both a satellite holding and a general diversifier to global markets.
*Source: London Business School, ICI Facebook 2024
**Source: RBC Wealth Management
***Source: Allianz Global Investors
****Source: FE Analytics, total returns in pounds sterling, 1 April 2026 to 30 June 2026
^Source: fund factsheet, 31 July 2026
^^Source: FE Analytics, figures in pounds sterling, figures from 30 June 2023 to 8 September 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Main image: china, leon-liu-eOPW2FRIHUc-unsplash
