Wed. Oct 20th, 2021

An increasing number of asset allocators plan to reduce their exposure to China because regulatory unrest has hit foreign investors in the country, according to a new survey by Invesco.

A $ 1.61 billion fund manager survey of more than 200 professional investors, including pension funds and insurers, conducted in June and July found that 12 percent would reduce China’s place in their portfolios – three times as much as in 2019 when it was last surveyed.

Invesco also found that the number of asset owners was declining which was expected to increase their exposure to China. In 2019, 80 percent of investors said they would increase their positions, compared to 64 percent this year.

China this summer carried out a series of regulatory shocks targeting sectors from technology to real estate, as well as suspending businesses abroad. The actions swept billions of dollars from the holdings of major international investors, sparking a heated debate over the future of the world’s second largest economy.

According to analysts at Goldman Sachs, an estimated $ 3.2 tonne market capitalization could be exposed to further regulatory uncertainty – about one-sixth of the stock market of all Chinese listed companies. Investors in Chinese bonds sold abroad are also facing uncertainty amid the looming risk of default from Chinese real estate developer Evergrande.

Some large overseas investors have reduced their holdings in China, including George Soros and Cathie Wood. Others, such as BlackRock and the founder of Bridgewater Ray Dalio, remains optimistic about the economy.

Andrew Lo, head of Asia Pacific at Invesco, said: ‘For those who have long invested in China and seen the ups and downs, the case for investing in China is still very much intact despite [recent regulatory] issues. ”

Lo acknowledged that sentiment among respondents to Invesco’s survey was ‘mixed’, but noted that 86 per cent of respondents said they had grown or maintained their exposure to China over the past 12 months. However, that figure dropped from 96 percent in 2019.

“China continues to open up and become friendlier to global investors; access has become more convenient; and the attractiveness of the [domestic] “Assets have increased over the past few years as a result of the government’s efforts to grow the economy and its capital markets,” Lo said.

Chinese regulators have taken a number of measures over the past two years to make it easier for investors to access the country’s major stock and debt markets. In 2019, Beijing scrapped a quota system for foreign institutional investment, saying in 2020 that asset managers and investment banks could own 100 percent of their companies for the first time.

Invesco owns a large stake in its joint venture with Great Wall Securities, a partnership linked to Ant Group, the financial technology company founded by Jack Ma. Invesco has grown in China’s mutual fund industry, with total assets under management rising from $ 19 billion in 2016 to $ 83 billion this year.

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