In its second RMB Investors Forum, Standard Chartered concluded that China is still an attractive investment location to foreign investors. Standard Chartered’s RMB Investors Forum is a programme aimed at engaging market participants on real investment issues around China through a rigorous process of research, debate and analysis.
Key amongst this year’s findings is that China is a top three priority for more than 60 percent of investors who responded to the survey. This is nearly 20 percent more than those who indicated as such in the 2016 survey.
This positive outlook from investors stems from their confidence that the RMB will stablilise. Consequently, investors’ investment appetite for the China market remains in a similarly strong level to last year. There were three specific drivers behind this optimism: First, public sector institutions, such as central banks and sovereign wealth funds, are increasingly looking at investing in China following the inclusion of the RMB into the Special Drawing Rights basket by the International Monetary Fund in October 2016.
Second, the insurance sector is drawn towards Chinese fixed income assets as new regulatory guidelines require that they lengthen the duration of their bond holdings to match liquidity. Third and lastly, there has been a large number of mainland retail investors reinvesting their capital onshore as they are attracted to the short-term investment opportunities.
Clear and simple accessibility
The survey showed that investors experienced improved regulatory transparency in China, which is a top consideration for them when deciding which investment channels to use. In addition, with further regulatory reforms, the China Interbank Bond Market (CIBM) and Stock Connect are increasingly becoming the access channels of choice especially for newer investors.
Nonetheless, this interest has not diminished use of the existing RQFII and QFII programmes as the investment quotas related to these channels have also been eased. Furthermore, our survey showed that investors have an increasing desire for alignment and further simplification when accessing China.
Next big thing
Respondents are cognizant of the huge progress and commitment from the Chinese government in opening up the market. Specific to obtaining an inclusion into the MSCI, the market expectation now is one of how it will be managed instead of whether the event will take place.
In fact, 50 percent of the respondents expect the leading bond index providers (Bloomberg Barclays, Citi, JP Morgan) to announce an allocation to China in their main indices next year, while a third of them expect this to happen this year.
The Bond Connect, expected to launch imminently in early July, is open to all investors and will provide seamless scalability, simple access and a familiar legal jurisdiction in Hong Kong. However, a lot of work remains to be done to ensure the Bond Connect can be accessed fully by global investors.
Standard Chartered Bank Regional Head Securities Services Greater China and Northeast Asia Barnaby Nelson said, “After a relatively cool 12 months on China, international investors are showing an overwhelmingly strong intent to grow their China investments in the short term. Our survey underlines that this is due to significant improvements in both the economic outlook and the channels that investors can use to access China. We have made huge progress in a year and there is a strong sense that the end-game is now in sight.”
The Standard Chartered 2nd RMB Investors Forum research process saw participation from over 900 investors with geographical representation in Asia, Europe and the US. The survey adopts a holistic approach with all participants of the investment cycle represented: insurers, pension funds, asset managers, private banks, investment banks, brokerages and market players. The study was conducted from March through to April 2017 using both qualitative and quantitative methods.