Eastspring Investments
Sep 2026|5 min read
Executive Summary
Eastspring Investments’ inaugural China Investment Summit in Shanghai brought together perspectives from Eastspring and Prudential’s three joint ventures in China - CITIC-Prudential Fund Management, CITIC-Prudential Life and BOCI-Prudential Asset Management. The discussions explored some of the key forces shaping the investment landscape, from Artificial Intelligence and Asian bonds to the changing narrative in China equities and portfolio design in an increasingly uncertain world. We bring you a summary of the key takeaways from the summit.
Positioning for the next wave of AI opportunities
While infrastructure is driving the current phase of the AI revolution, applications may define the next. This would broaden the group of AI beneficiaries beyond semiconductors and hardware providers to companies that use AI to improve productivity, strengthen competitive positions and increase revenues.
Some areas where AI applications can create commercial impact include software companies embedding AI into existing products and automating workflows to obtain higher pricing. System integrators can also use AI to accelerate digital transformation for their enterprise clients. With AI, cybersecurity companies can detect threats faster. For e-commerce platforms, AI can increase revenue growth by personalising recommendations, and lifting customer conversion rates. In the healthcare sector, AI-driven drug discovery is emerging as one of the key pathways to creating tangible economic value as drugs reach clinical trials and commercialisation faster.
Mispricing opportunities are likely to emerge with these new areas of value creation especially if investors continue to focus on obvious AI winners or underestimate the pace of AI monetisation.
Risks to monitor
- Crowded trades can unwind quickly – stay disciplined on valuations.
- Assess whether market reactions reflect a deterioration in fundamentals or sentiment-driven volatility. For now, we see Korean memory chipmakers’ recent High Bandwidth Memory specification adjustments as reflecting supply shortages rather than demand weakness. Likewise, recent reports of a global tech conglomerate’s plans to rent out excess cloud compute capacity look more like revenue optimisation rather than capex retrenchment.
- Watch China’s push for semiconductor self-sufficiency, as seen in the recent large STAR Initial Public Offering by a Chinese memory maker. Rising competition could pressure profitability across parts of the global semiconductor supply chain.
Embracing China’s dual market opportunities
China equities are becoming more attractive as shareholder returns and corporate governance improvements converge with structural growth opportunities. A- and H-share markets offer complementary ways to access this evolving opportunity set.
China’s equity market has historically been viewed as being policy-driven and highly cyclical. This narrative has shifted in recent years. Following the rising participation of southbound flows and long-term allocation funds in the market, there is an increasing management focus on dividends, cash flow, share buybacks and corporate governance.
Renewed interest in Chinese equites has been supported by a few key developments since 2025. The AI boom and China’s strong export engine mitigated the drag from the property sector, underpinning economic growth. At the same time, China’s domestic substitution strategy fostered the emergence of globally competitive and innovative companies in high-end manufacturing and the AI supply chain.
What A- and H-shares offer investors
- A-shares offer exposure to advanced manufacturing and domestic cyclicals, often at more domestically driven valuations.
- H-shares offer exposure to high dividend yielding state-owned companies which tend to be priced against global valuation benchmarks, making them more sensitive to international capital flows.
- These complementary exposures are even more obvious within the technology sector where A-shares offer exposure to the AI supply chain, advanced manufacturing, new energy vehicles, solar and energy storage while H-shares provide greater access to AI applications including traditional cloud service providers, internet companies and large language model companies.
Bridging the yield gap with Asian bonds
Chinese insurers are experiencing a structural return gap amid China’s low-interest rate environment today. As higher-yielding assets mature, reinvestment risk is rising, making it challenging to meet long-term insurance liabilities. A potential solution is to expand offshore bond allocations, a path which Japanese and Taiwanese life insurers have taken. With Chinese insurers’ overseas assets only accounting for ~2% of their portfolios, there is considerable room for the overseas allocation to rise before it hits the 15% regulatory cap.
That said, offshore fixed income brings a different return path compared to onshore bonds. Higher returns from offshore bonds may come with greater mark-to-market volatility. Return objectives should therefore be calibrated against an explicit volatility and drawdown budget, rather than focusing on yield alone.
Foreign currency exposure introduces an additional layer of risk. Fully hedging offshore currency exposure back to RMB can materially reduce the yield advantage of offshore bonds. On the other hand, leaving offshore currency exposure unhedged raises the risk that RMB appreciation may erode, or even offset, the underlying bond return.
Why Asian bonds
For Chinese insurers, Asian fixed income can offer a broader, high-quality opportunity set that can enhance returns and deliver sustainable RMB-adjusted outcomes.
- Asia’s broad universe of highly-rated sovereigns, quasi-sovereigns and investment-grade corporates allows insurers to enhance returns while maintaining strong portfolio quality.
- Asia’s opportunity set extends beyond USD bonds into AUD, SGD and increasingly JPY, providing additional sources of yield and cross-market relative value. The SGD can act as a portfolio stabiliser, while the AUD is more linked to global economic growth.
- The Asian fixed income market should continue to grow in depth, breadth and sophistication alongside the region’s economic growth. Growing domestic savings pools and institutional participation from insurers, pensions, banks and asset managers should provide a durable source of demand, particularly for local-currency bond markets.
Designing portfolios for uncertain markets
In uncertain markets, portfolio design needs more adaptive sources of alpha, deeper customisation, and risk management tools that can respond when historical relationships become less reliable.
How to build more resilient portfolios
- As the strategic asset allocation (SAA) is typically the largest driver of portfolio risk for most institutional portfolios, stress test portfolios across a wide range of economic and market scenarios to assess how correlations and portfolio behaviour may change in challenging environments.
- Risk management overlays can provide systematic downside protection at a reasonable cost when asset relationships shift.
- Tactical asset allocation (TAA) should not be a pure market-timing exercise. Have diversified sources of alpha that can perform across different time horizons and market environments.
- Options help reduce timing risk, especially in volatile markets, when holding a traditional delta-one position may be challenging. Options offer asymmetric return opportunities by defining maximum downside while helping investors to stay invested through the short-term volatility.
- Go beyond customising portfolios for different risk appetites and objectives. In systematic investing, engine-level customisation means building alpha models that recognise country, regional and sector differences, rather than relying on a one-size-fits-all global model. This is particularly important in markets such as Asia given different and evolving local market structures, policy cycles, investor behaviour and sector dynamics.
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