After visiting more than 50 institutional investors in 20 cities in many countries, such as the United States and the United Kingdom, Wang Qi, global head of institutional business of Shicheng investment, is obviously interested. The number of institutional investors interested in China is increasing. More and more overseas investors think that it is necessary to distinguish emerging markets and Chinas stock allocation, and consider how to establish a better AllChina portfolio.
Distinguish emerging markets from Chinas stock allocation
In the global roadshow of Shisheng investment every year, Wang Qi will visit dozens of institutional investors from many countries, including the United States to visit retirement pension, insurance asset management, (University) gift fund, fof / mom, private bank, family office, etc. This year, these institutional investors are taking on new changes when considering the Chinese market.
More and more overseas institutional investors think that it is not enough to invest in China only through emerging market funds. Wang Qi said that the asset allocation of overseas investment institutions will gradually develop to emerging markets except China and Asia except Japan except China.
Some overseas professional investment institutions have said that they are more concerned about whether China will be independent from emerging market indexes, and the separate allocation of Chinese stocks is the future trend.
On the one hand, Wang said, Chinas economy far exceeds all other emerging markets and developed countries in size and growth. Chinas economy has accounted for 16% of global GDP, and 30% - 40% of global economic growth also comes from China. At present, the weight of Chinese stocks in the global market is only about 3% (including A-shares and Chinese stocks listed in Hong Kong and overseas), even if A-shares are fully included, it accounts for up to 5%. Therefore, it is not enough to interpret the importance of Chinese stocks in the framework of emerging markets.
On the other hand, the size, breadth and depth of Chinas stock market determine the limitations of the framework of emerging markets. Wang Qi said that a shares have become the second largest stock market in the world, with total market value and trading volume second only to the United States, and China has become the single largest weight of emerging markets. After A-share is fully incorporated into the international index system, it will account for about 20% of the weight of emerging markets. In addition to the existing overseas listed Chinese companies, the whole China will account for more than 40% of the weight, which is higher than the current 30%. In terms of the number of stocks, after MSCI was included in the A-share mid market this month, there will be more than 700 stocks in the MSCI Emerging Market Index in the whole Chinese market, and the whole emerging market index will also have more than 1400 stocks. Even more than 636 in the US (non emerging markets). In terms of individual industries, such as consumer, medical and other sectors, the number of a shares alone has doubled the number of existing non Chinese shares.
Wang Qi said that in the future, if China really breaks away from the framework of emerging markets, the foreign investment into the A-share market will be far more than the expected 4 trillion yuan.
How to build a better
Compared with the North American roadshow last year, we have about 25% more customer meetings this year. Mr Wang said the number of institutional investors interested in China appeared to be rising. Generally speaking, the more long-term investors, and the earlier investors enter the market in China, the higher their willingness to add to the Chinese market.
Most of the investors Wang Qi visited have invested in Chinas stock market for many years, and this year their new idea is how to better integrate the investment of a shares and overseas China, and how to build the best AllChina portfolio.
A Southern University grant Fund said it had decided to increase its investment in the Chinese market. The question is not only through long-term strategy or hedge fund, but more importantly, which Chinese market should these incremental funds be allocated to? A share or overseas China? Wang Qi said.
Wang Qi said that most of the institutions visited have invested overseas in China, but those that have not yet invested in a shares are considering the time and strategy for a shares to enter the market. Finally, a few institutions that have never directly invested in Chinas stock market are considering whether to invest in overseas China or A-share or both.
In terms of concerns about investment in Chinas market, as Chinas capital market is opening up ahead of time this year, the entry conditions for foreign investment are no longer the main contradiction. Now, when considering the allocation of Chinese stocks, foreign investment institutions mainly focus on the risks of Chinas hard landing, enterprise quality, transparency of listed companies and policy risks of state-owned enterprises. Wang Qi said that investors paid unexpected attention to corporate governance in China, and even a professional investment institution engaged in high-frequency trading raised questions about corporate governance for him. With the further opening of A-share market, corporate governance will become the focus of overseas investors.
Next stop for foreign investment:
Distinguish emerging markets from Chinas stock allocation
Source: Shicheng investment
In the past two weeks, the CIO and global head of institutional business of Shicheng investment have traveled to more than ten cities in the United States, visiting more than 20 institutional investors, ranging from retirement pensions to university gift funds, from family offices to professional fof / mom. Of course, on the one hand, it is to expand our overseas business; on the other hand, it is to collect (some) feedback from overseas institutional investors on the A-share market. In the context of A-share internationalization, this is extremely important information.
Lets hear what American investors say:
To be honest, we are not optimistic about China. But the fact is that more and more (institutional investors) customers are asking about Chinese A shares, so we have to prepare ahead of time. An investment consulting company in Midwest;
We already have an internal A-share investment team. But given the breadth and depth of the market, we need to understand how we can better capture relevant investment opportunities, including good external managers. A fund company on the west coast;
We have decided to invest more in the Chinese market. The problem is not just with long strategies but with hedge funds. More importantly, which Chinese market should these incremental funds be allocated to? A share or overseas China, or all China? A university grant fund in the South;
Our equity investment is divided into three parts: the United States, the global market excluding the United States, and emerging markets. We have been investing in emerging markets for a long time, but we always feel that our emerging market fund managers are often inferior to China, which is a common industry problem. So we have also added fund managers, including A-share investment experts, who are specialized in Chinas stock allocation and investment in the Chinese market to make up for this. A charity fund in the East;
I think almost all institutional investors are under invested in China. Under weighted China is a common problem. CIO of donation fund of a university in the East;
We are very clear about the inclusion of the A-share index you mentioned. Last week, our senior management just discussed the investment strategy of China. Now we are more concerned about whether China will be independent from the emerging market index. Its only a matter of time before emerging markets ex China or Asia ex China. The single Chinese allocation is the future. A professional investment institution.
What do you think of these comments full of professional perspectives? In summary, we should pay attention to the following points:
(1) these foreign investors have little concern about the short-term fundamentals and price fluctuations. Including news of Trumps governments restrictions on Chinese investment, which happened at the same time, was only occasionally mentioned at the meeting. This reflects that many foreign institutions are still optimistic about Chinas market fundamentals and rich alpha opportunities for a long time.
(2) even investors who are not optimistic about China should start to pay attention to the A-share market in view of the pressure of their customers. Of course, this is complementary to the inclusion of the A-share index and the increase of its weight.
(3) most investors are still indirectly investing in Chinas market through emerging market funds, which is beyond reproach. But more and more investors recognize the size and particularity of the Chinese market, so they develop to the managers who focus on investing in China.
(4) these funds flowing to Chinese investment experts may be diverted from emerging market funds or new incremental funds. In the future, if China really divorced from the emerging market framework, foreign investment in the A share market will be far more than our estimated 4 trillion yuan in the future.
In the end, we also raise a few questions we have observed.
(1) since this year, the supervision has increased the reform and opening up of the capital market for many times, which is absolutely good for the long-term healthy development of the A-share market. However, foreign investors do not know much about these latest measures (including the cancellation of QFII quota, etc.), reflecting our lack of global promotion. This requires the cooperation of the whole ecosystem including regulators, buyers, sellers and custodians. It is also hoped that the government will issue relevant detailed rules as soon as possible.
(2) most of the foreign investors still have little knowledge of a shares. Interestingly, one of the benchmarks for us to measure whether the other side understands the A-share market is Maotai. In the past two weeks, 100% of the customers we visited knew about Alibaba (even thought that a company of Alibaba could meet its position in China), while only about 40% of the customers had heard about Maotai (based on a customer group with a better understanding of China). Many foreign investors only judge the quality of A-share companies in the stage of SOE and non SOE.
(3) due to the strong momentum of passive investment (ETF, index fund, etc.) in the U.S. market, some U.S. investors also tend to invest in Chinas A-share index fund, ignoring the historical high volatility of the A-share index and the long-term return of nearly 0%. (4) investors pay more attention to Chinese corporate governance than expected. Even a professional investment institution engaged in high-frequency trading has raised questions about corporate governance to us, let alone other long-term investors. With the further opening of A-share market, we believe that corporate governance will become the focus of overseas investors. To improve the governance level of listed companies will be the next goal of supervision, exchange, listed companies, buyers and sellers. Source: editor in charge of China Fund News: Yang bin_nf4368
(3) due to the strong momentum of passive investment (ETF, index fund, etc.) in the U.S. market, some U.S. investors also tend to invest in Chinas A-share index fund, ignoring the historical high volatility of the A-share index and the long-term return of nearly 0%.
(4) investors pay more attention to Chinese corporate governance than expected. Even a professional investment institution engaged in high-frequency trading has raised questions about corporate governance to us, let alone other long-term investors. With the further opening of A-share market, we believe that corporate governance will become the focus of overseas investors. To improve the governance level of listed companies will be the next goal of supervision, exchange, listed companies, buyers and sellers.