Unpredictable regulation weakens China’s short-term appeal, global fund managers say
(Reuters) – The unpredictability of China’s regulatory measures makes the country unattractive to foreign investors in the near term, following its latest crackdowns in the tech, real estate and financial sectors. education, said global fund managers.
However, if these measures turn into meaningful reforms that protected data and curtailed monopoly practices, they could increase China’s long-term attractiveness, they told the Reuters Global Markets Forum this week.
“I think investors just don’t like the uncertainty of not knowing what the next shoe to give up will be,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Haefele, who heads the world’s largest wealth manager with $ 3.2 trillion in assets, said it was still early days and he would wait and see “how long that will last.”
(CHART: Chinese equities versus global benchmarks -)
Foreign investors will be “absolutely” wary of increasing their investment in China in the near term, said Yicheng Zhang, managing director of Chinese private equity firm CITIC Capital.
Even though China’s regulatory measures were expected due to the country’s orientation towards “common prosperity,” the specific tactics used were surprising and sent shockwaves, said Hong Kong-based Zhang, who manages $ 36 billion.
“Basically, it also surprised me to turn some of these companies into non-profit entities overnight,” he said, adding that the concerns of foreign investors over the lack of respect for property rights by these measures were understandable.
The steps China has taken to liberalize its financial markets in recent years, along with its cheap valuations in emerging markets, are also helping to keep the country attractive in the long run.
“China wants to continue to open up its financial markets, and it recognizes that to do so effectively, it must act more cautiously as it institutes these reforms,” Haefele said.
“It could be a very positive story,” he added.
Haefele said its exposure to China is in line with a broad long-term allocation in emerging markets and is bullish in various sectors, including fintech, health tech, sustainability and 5G.
Justin Onuekwusi, head of retail multi-asset funds at LGIM, said his company continued to hold Chinese stocks because they represented better value at current levels than their European and US peers.
Meanwhile, the CIO of financial firm AIA group Mark Konyn, which manages $ 230 billion, viewed the crackdown as only a transitional phase.
Zhang believed that China was “investable” in the long term because stocks were not a change in policy direction. “People will understand that this is more of an accident than a trend.”
Stocks have actually cooled some of the market “frenzy”, making valuations in some sectors quite cheap, he said.
Zhang said CITIC Capital’s investment strategy focused on traditional sectors related to the buyout, including business services, consumers, healthcare and non-internet technologies.
However, the education sector has hit “rock bottom,” Zhang said, adding that with the short-term political outlook looking uncertain, “it’s best to be on the sidelines for now.”
(These interviews were conducted in the Reuters Global Markets Forum chat room on Refinitiv Messenger. Join GMF: refini.tv/33uoFoQ)
Reporting by Divya Chowdhury in Mumbai, Aaron Saldanha and Lisa Pauline Mattackal; Additional reporting by Supriya Rangarajan in Bangalore; Editing by Mark Potter