Ease of access to China a priority for investors – Funds Europe survey

Forbidden_City_gateIt is becoming easier for foreign investors to access the Chinese market, both through onshore and offshore channels, according to Funds Europe’s China Investor survey 2020 conducted in partnership with Standard Chartered. This has been a prime factor driving respondents’ decisions to increase their investment flows into China. Some 69% highlight ease of access to onshore channels (the Qualified Foreign Investor, or ‘QFI’) and 63% highlight ease of access through offshore channels (such as Stock Connect and Bond Connect) as being key to driving their investment strategies in the Chinese market. – China’s regulators have streamlined the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) programmes, removing the need for foreign investors to apply for investment quota and bringing these two regimes together under the QFI programme from November 1. Foreign investors will also have access to a wider range of products in China’s Interbank Bond Market (CIBM) The survey affirms the position of Stock Connect and (more gradually) Bond Connect as access channels of choice for many international asset managers and institutional investors, offering simple registration and fast entry for those who previously found it challenging to execute their investment ambitions in China through the QFII or RQFII schemes. With the part inclusion of China A-shares in the MSCI Emerging Markets Equities Index from May 2018, this has driven a surge of investment into China through Stock Connect, the equities trading link between China’s mainland markets and the Hong Kong Stock Exchange. Despite economic disruption created by the coronavirus pandemic, the Stock Connect access channel generated record revenue of 1,354 million Hong Kong dollars (around US$175 million) during the first nine months of 2020 - a 79% rise year-on-year according to data from Hong Kong Exchanges and Clearing. Northbound trade through Stock Connect reached a new high with average daily trading volume of 191.2 billion renminbi ($28 billion) on July 7, 2020.  Stock Connect has also driven rising Southbound investment into equities listed on the Hong Kong Stock Exchange, with average daily trade volume reaching a record 60.2 billion Hong Kong dollars on July 6, 2020. Stock Connect currently covers a major share of mainland and Hong Kong listed companies by market capitalisation (76%), but still less than 30% of the total number of listed companies. However, coverage is being extended, with inclusion of eligible A-shares listed on the Shanghai Star Market into Stock Connect from February 1, 2021. Index inclusion has also encouraged northbound investment flows into local currency government bonds and policy bank bonds via Bond Connect, following the phased introduction of these bond securities in the Bloomberg Barclays Global Aggregate and the JPMorgan Emerging Market Bond indices which began in 2019. Average daily trading activity through Bond Connect rose to 19.5 billion renminbi for the first nine months of 2020. Foreign participation in the CIBM has increased by more than 250% since the launch of Bond Connect in July 2017, according to Bond Connect Company Limited data. However, with less than three per cent of total CIBM assets in foreign ownership, there is significant opportunity for this to grow further. To assess the relative importance of these access channels to international investors, survey respondents were asked to rank each access channel in order of importance from 6 (most important) to 1 (least important). These were then ranked in order on the basis of their weighted-mean calculated from respondent scores. Survey results indicate that Stock Connect is the dominant channel on the basis of current usage, reflecting the strong growth in both northbound and southbound trading activity discussed above. However, the QFI channel remains important to foreign institutional investors and is ranked in second place. Alongside these channels, foreign institutional investors continue to tap fixed income yield through investing in renminbi-denominated bonds issued offshore, particularly in Hong Kong. This complements offshore and onshore access to China’s bond markets respectively through Bond Connect and CIBM Direct. In two years’ time, respondents indicate that overseas investors will continue to favour this multi-channel approach, with no single channel meeting all of investors’ requirements including efficient FX hedging, funding flexibility and low transaction costs. Stock Connect will remain the dominant channel for investing in equities, with northbound investment flow through Bond Connect also continuing its strong growth. However, investors will continue to invest through QFI channels and in renminbi-denominated bonds issued in offshore financial centres. CIBM Direct retains its attraction – particularly for central banks, pension funds and other prominent foreign investors which value the yield opportunities and risk management tools offered through this investment channel. Read the China Investor Survey 2020 report now » © 2021 funds global asia

Industry comments

Investing in tomorrow’s world

investmentAt times like these, HSBC Asset Management easily pivots towards emerging markets.

The spotlight on growth markets and the need to be nimble and dynamic is ever-sharper, given the difficulty in predicting monetary policy in the world’s major nations.

Sponsored feature: Navigating the complexities of FX execution and currency risk

A comprehensive, cost-effective, and transparent currency overlay hedging solution is crucial to mitigate FX exposure risks in the complex landscapes of Japan and China's FX markets, explains Hans Jacob Feder, PhD, global head of FX services at MUFG Investor Services.


Asia credit: An outsized winner in the region’s energy transition?

Ross Dilkes, fixed income portfolio manager at Wellington Management, examines the opportunities and risks for bond investors presented by the region’s decarbonisation agenda.

A quiet revolution in Japan’s corporate governance

revolution, Japan, corporate governance, Shareholders, corporate, governance, standards, improvement, Tetsuro Takase, SuMi TrustShareholders in Japan no longer accept below-par corporate governance standards. Changes are taking place, but there are still areas for improvement, says Tetsuro Takase at SuMi Trust.

Why rising demand for healthcare is creating investment opportunities in China

rising demand, healthcare, investment, opportunities, China, Robert St Clair, Investment Strategy, Fullerton Fund ManagementRobert St Clair, head of investment strategy at Fullerton Fund Management, explores the reasons investors should be paying attention to the rising demand for healthcare in China.

Why take advantage of the recent dip in China’s internet sectors

advantage, China, internet, market, OctoberChina's internet market presents one of the most compelling long-term growth potentials for investors today, given the catalysts supporting the sector from both macro and fundamental perspectives, explains Dr Xiaolin Chen, head of international, KraneShares.

Executive Interviews

Executive interview: PGIM CEO on where the ESG flowers should bloom

Sep 27, 2021

David Hunt, president and chief executive of PGIM, tells Romil Patel about leading a top 10 global asset manager in times where “empowering and encouraging the kind of investment decisions as...

Executive interview: Nicolas Moreau’s orderly transition

Jul 12, 2021

Nicolas Moreau, CEO of HSBC Asset Management, is moving to Asia as the firm looks to connect more directly with the region’s growth story. ESG is also a key focus – including the ‘just’ carbon...


India: An “obvious choice for global investors”

Jun 22, 2023

Funds Europe, the sister publication of Funds Global Asia, hosted an India investment discussion with two seasoned experts and asked if India is the ‘last one standing’ from the Brics phenomenon. We also hear that for India, the inclusion of Indian bonds in a major index may not be the desired...

Roundtable: Singapore comes of age as an Asian ESG hub

Dec 01, 2021

Strong ESG credentials strengthen the case for Singapore as a leader in Asia of the post-Covid recovery. Our panel discusses the risks and opportunities.