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Institutional investors turning to China 

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Investors have been reassessing their approach to investing in Chinese equities, according to a new report, which has shown a shift toward products specific to the region.

The white paper from bfinance has said while four in five institutional investors still obtain their China equity exposure solely through global emerging market strategies, the firm’s clients are increasingly using dedicated Chinese equity products, such as A-Shares funds for onshore exposure or All-Shares strategies, which blend onshore and offshore.

The bfinance research indicated that more than 30 investment managers are able and willing to offer dedicated All-Shares strategies, either with an established or with a new launch that blends onshore and offshore capabilities. 

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Further, there are more than 70 managers offering Chinese equity strategies that primarily focus on offshore equities.

The re-evaluation was said to be driven by the growth of China’s equity markets, both in terms of index weightings and overall market capitalisation.

The investment firm noted a rising awareness around onshore equities, which are “still underrepresented” in global indices and global emerging market strategies. 

Investing through a global emerging market strategy effectively outsources the decision on China allocation and tends to focus largely on offshore equities, bfinance noted, pointing to other possibilities, such as investing A-Shares alongside EM equities, or introducing a standalone Chinese strategy and managing onoffshore and offshore equities together.

The market turmoil has showcased diversification, the report added, with a clear divergence between Chinese equities and global emerging markets in the first quarter.

While the MSCI EM (emerging markets) index lost 23.6 per cent, the MSCI China A Index lost 9.72 per cent and the MSCI China Index (largely offshore) lost 10.22 per cent.

The average A-shares manager has delivered 5.3 per cent per year over the last five years, versus 6.2 per cent for the MSCI A-Shares Index. 

Meanwhile, the average Chinese equity manager was said to deliver a return of 5.3 per cent per year, compared to 3.6 per cent for their typical benchmark – the MSCIA China Index. 

Weichen Ding, senior associate at bfinance said it is “increasingly untenable to remain on the sidelines” of the world’s second-largest equity market. 

“More investors are beginning to take a strategic approach, as one might traditionally do with markets such as Japan, Europe and the US,” Mr Ding said.

“Investors examining this space during this moment will encounter a landscape of products and strategies that has changed a great deal during the last five years.

“Right now, the most noticeable changes are taking space in the All-Shares space: there are still fewer than 20 strategies, but more than 30 managers are able and willing to offer this strategy to prospective clients – for example, by combining existing onshore and China offshore capability together.”

 

Institutional investors turning to China 
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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