Global investors continue to bet on China assets as over 80% increased or maintained exposures over past 12 months
- Half of survey respondents (50%) say their China exposure increased over the past 12 months, and 64% plan further increases in the next 12 months
- A majority (60%) of respondents expect better economic conditions in China relative to those globally over the next 12 months
- COVID-19 and US-China trade tensions have increased risk appetite for asset owners in relation to their China exposures
- Technology themes, alternatives, top draws for investors
- ESG a growing influence on China exposures; 62% of respondents always or often adopt ESG investing with their China exposures and two-thirds (66%) say their China exposure grew due to ESG goals
Hong Kong, 30 September 2021 –The vast majority of global asset owners have either increased or kept their organization’s allocation to Chinese investments in the past 12 months, according to an Economist Impact survey on global investors’ China exposure, commissioned by Invesco.
China Position 2021, a survey of 200 asset owners across North America, Asia Pacific, Europe, and Middle East, collected responses from senior investment professionals at global organizations on their exposure to Chinese investments between June and July 2021. It revealed that 86% of respondents say their China exposure has either grown or maintained over the past 12 months, with 64% expecting further increases in the next 12 months; only 12% reported any expectation of reduction.
Chin Ping Chia, Head of Business Strategy and Development, China A Investments, at Invesco said: “The survey finds that investment sentiment from international asset owners on their China exposures has largely held stable in the past 12 months. We did see some leveling off in respondents’ expected allocation increase over the next 12 months when compared with the 2019 survey, which could have been due to market performance, but nonetheless we see that five times more respondents expect to increase rather than decrease their China allocations in the next year. China is the only major economy globally to show positive GDP in 2020 through the coronavirus pandemic. Despite the ongoing geopolitical tension and recent headlines on actions by Chinese regulators, the macro outlook remains strong as the country finetunes its industry policies to balance growth with sustainability. We see global investors recognize the need and benefit of a long-term China allocation as the underlying economy continues to evolve and transform.”
A majority (60%) of respondents have better expectations of economic conditions in China relative to conditions globally over the next 12 months. While COVID-19 has transformed economic behavior and financial markets, it does not seem to have changed investors’ strategic view of investing in China or where the opportunities are. Over half of survey respondents (54%) believe the pandemic had increased their risk appetite towards their China exposure.
Geopolitical uncertainty from US-China trade tensions lingers this year under the Biden Administration, yet 80% of survey respondents say this ongoing dynamic has had a moderate or significant influence on them to increase China exposure levels. This contrasts with the results of the same survey conducted in 2019 when 44% of participants said it will have a negative impact on their investment decisions.
Onshore securities remain most popular; gearing up alternatives and technology
When it comes to asset class selections, China onshore equities is still the most popular asset class for most respondents (52%), followed by onshore fixed income (51%) and offshore equities including H shares and US-listed China ADRs (50%). The results are in line with the 2019 findings.
Illiquid asset classes remain on global asset owners’ radar given the current low-rate environment for fixed income and continued volatility in equity markets, and the trend is reflected in respondents’ China investments. Real estate (40%), direct ownership of companies (39%) and other alternatives (38%) are among the top three asset classes which survey respondents are planning to increase their allocation to over the next 12 months. While close to two-fifths of respondents (37%) say they will increase their allocation to onshore China equities, this figure is lower compared to the figure in 2019 (52%).
While recent regulatory reforms in China have driven volatility in the technology sector, the survey finds that global investors continue to allocate to this segment. “Technology Innovation” (49%) and “Financial Services” (44%) remain the top investment themes for survey respondents, consistent with the 2019 survey, with Healthcare (27%) and Domestic Consumption (26%) themes also capturing interest. Within Technology, asset owners are looking at opportunities from artificial intelligence or related digital automation (39%), 5G (32%) and online services for consumer or B2B (31%).
Chin Ping Chia commented: “China is already one of the most sophisticated digital economies globally and the country has by no means abandoned its ambition to further advance in this segment. We foresee that the recent increase in regulatory scrutiny will promote healthy competition and support more sustainable competition within the internet sector, which should set China on its path to meet one of the key targets outlined in its 14th Five-Year Plan: to transform into an innovation powerhouse. As China’s clout grows further in the global economy, long-term investors are likely to reap the full benefits with an appropriate exposure in China assets linked to new economy themes.”
Investors continue to carve out China from EM; market transparency concerns remain
As allocations to China assets form a larger part of portfolios, investors are increasingly carving China out from the emerging markets segment. Over half (54%) of survey respondents state they have direct investments in China with a dedicated portfolio, compared to 40% in broader investments such as emerging market or Asia-focused vehicles. Improving overall portfolio efficiency (48%), exposure to opportunities in specific sectors (46%) and participating in China’s long-term economic growth story (45%) are cited as the key investment objectives of having dedicated China exposures.
Survey respondents highlighted a range of factors that make China an attractive investment destination. The highest ranked factors include expectations of the growth and expansion potential of China’s economy or of listed-company profits (35%) along with improvement in the quality of financial intermediaries within China (35%). This confidence in financial intermediaries was notably higher than in 2019, when it was a factor for 27% of respondents.
Conversely, challenges to China investments mainly centre on issues of corporate governance and transparency, such as a lack of trust in corporate reporting (38%), low regulatory transparency (38%) and opacity in China’s financial system for foreign investors (33%). About one-third of respondents still believe they lack China expertise to cover the market.
ESG: A factor to beef up investors’ China exposure
Asset owners are increasingly integrating ESG factors into their investment processes globally and also for China. 62% of survey respondents say they always or often adopt ESG investing as part of their consideration with China exposures, with just 8% saying they rarely or never do. Two-thirds (66%) of survey respondents say their China exposure has increased due to their ESG goals, as both Chinese companies and the government progressively place greater importance on ESG.
In the meantime, transparency remains a key consideration for global investors. Respondents’ top three concerns are that too few equity or bond issuers in China meet their standard for scope or quality of ESG disclosures (28%), ESG-related data from equity or bond issuers in China is not readily available (25%), and ESG-related data from equity or bond issuers in China is too difficult to verify (12%). An improvement in ESG disclosure represents a major opportunity for institutional investors, as 23% of asset owners flagged improved ESG disclosure by Chinese debt or equity issuers as a key driver that would cause them to expand their China exposure.
Chin Ping Chia concluded: “While it is still in its early days, China’s ESG disclosures and reporting standards have been improving at a fast pace over the last five years driven by an increased awareness of ESG issues by both companies and investors. The country also exhibits a significant determination to play a meaningful role in climate change mitigation going forward, such as moving toward carbon neutrality. We believe the nation’s ESG and climate ambitions will bring far-reaching transformational consequences to the China investment landscape and shape the way Chinese companies operate.”
About Invesco Ltd.
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Notes to Editors
China Position 2021 full report for Professional Clients can be found at
https://www.invesco.com/invest-china/en/institutional/expert-study.html
Appendix – Sample and methodology
China Position 2021 is an Economist Impact report, sponsored by Invesco, that analyses results from a survey of 200 asset owner organizations (50 institutions each based across four regions, North America, Europe, Middle East and Asia Pacific), including pension and sovereign funds, endowments, banks and insurance firms. Respondent seniority ranged from group director to CEO or firm owner with about 50% at the C-suite level and with personal investment decision-making power. Assets under management at surveyed organizations spanned from US$500 million to greater than US$10 billion. The survey was conducted over June and July 2021.
