Foreign assets managers shift investment from West to East
China represents ‘greater opportunities’ amid weakening global growth: Amundi's Vincent Mortier
Published: Jun 04, 2023 09:37 PM
Photo: VCG

Photo: VCG

As China's economy gradually rebounds from a three-year coronavirus-induced slowdown, some western assets managers have moved to readjust their investment portfolios from the US to China.

They made the decision despite recent fluctuations in China's financial markets, in what experts said is a clear signal of overseas investors' upbeat view on China's long-term economic prospects as the global economic situation is mired in thickening uncertainty.

According to a report by the Financial Times on May 19, Europe's largest assets manager Amundi is moving out of US dollar-denominated assets in favor of Chinese assets. The firm's chief investment officer Vincent Mortier said that the company has "made a clear shift from West to East" in their portfolios.

"In an environment of weakening global economic growth and divergences in the developed and emerging markets, China presents opportunities linked with its long-term journey towards a mostly domestic driven economy and a scale-up in the value chain," Mortier said in a note he sent to the Global Times recently.

'From West to East'

Other financial companies are making similar moves too. Last month, China's securities watchdog China Securities Regulatory Commission (CSRC) gave green-light for US-based Morgan Stanley to set up a futures unit in China, making it the second foreign institution to have a majority-owned futures venture after JP Morgan.

Experts said that overseas investors' exploration of the Chinese market coincides with China's continued financial sector opening-up, which forms a "virtuous circle" that will encourage more foreign investors to bet on Chinese assets.

According to Mortier and the comments made by other multinational assets managers, there is broad confidence in the Asia Pacific region's economic prospects, especially China, despite some short-term fluctuations.

Mortier, for example, said that the company keeps its forecast "unchanged" for 6 percent growth for Chinese assets, saying the target is "achievable" despite some negative signals across high frequency indicators in May that caused short-term market fluctuations.

China's stock markets underwent a correction lately. In May, China's benchmark Shanghai Composite Index fell by about 100 points, public data showed.

Valuations 'attractive'

"Even though stocks have fallen in contrast to other markets, we believe markets are now factoring in a full reversal of reopening and a retreat of the housing sector. We don't think the situation is as dire as the markets expect because part of the data disappointment is due to a statistical reset in housing sales, or concerns over economic growth," Mortier said, adding that the company remains "constructive" on (Chinese) equities because (China's) economic growth path over the next quarters versus the rest of the world is much steadier and valuations are attractive.

Significant excess savings accumulated during the pandemic and reasonably supportive government stance are positives, he said.

Mortier expressed a similar viewpoint of being more optimistic about Chinese economy than about US economy in the Financial Times interview, as he predicted that the US economy "will not grow" next year.

Thijs Aaten, CEO for APG Asset Management Asia, also said during the recent Global Investors Conference that the company has attached great importance to Asia-Pacific when making assets allocation decisions, because the region's GDP has showed "very important" trend of development, according to the Securities Daily.

China has set a GDP growth of about 5 percent for this year.

Mortier said the tensions between China and the US are weighing on investment sentiment across the globe, which might lead some investors to demand higher risk premium, but he thought that US' 'decoupling' from China would create "divergences and opportunities" for diversification which adds exposure of Chinese assets to a global portfolio.

Analysts said that overseas investors' shifting investments is attributed to China's proactive opening-up measures, as the regulators have ramped up efforts to facilitate the inflow of foreign capital.

Deepening reforms

Such reforms include setting up mechanisms to facilitate stock and bond trade between Chinese mainland and Hong Kong, adopting a registration-based IPO system to facilitate companies to directly raise funds, as well as scrapping ownership caps for foreign shareholders in more joint-venture partnerships.

The reforms are a positive for overseas investors that hold optimistic views about China's growth potential. Thijs Aaten, for example, said that the registration-based IPO system could help listed companies to be increasing transparent on information disclosure.

"When selecting investment targets, investment companies not only focus on financial performance, but also on whether the target company's business model is sustainable," he was quoted as saying.

Recently, JPMorgan Chase's CEO Jamie Dimon made his first visit to China in about four years, along with a flurry of other global executives including Elon Musk and Starbucks' CEO Laxman Narasimhan.

Hu Qimu, deputy secretary general of the digital-real economies integration Forum 50, told the Global Times that he predicted that China is likely to further raise the approval cap of foreign capital that is allowed into China's financial markets, with a focus on guiding foreign investment to emerging strategic sectors.

Chen Jia, a veteran economic observer, said that many global company heads are visiting China more frequently as they prepare for a possible hard landing in the US economy caused by the banking crisis and the Federal Reserve's interest rate hikes, and they are starting to hold different opinions from the Biden administration on issues like strategic investments in China.

"In addition, as China's recent measures to deepen reforms and build a new pattern of high-level opening-up continue to gain pace, more companies are taking the opportunity to ramp up their cooperation with China. This is not only conducive to global economic and financial development trends, but also is in line with those companies' long-term development strategy," Chen told the Global Times.