A-Share Alert: Foreign Giants Speak Out

• Article
• 2024-06-25
• 11 Comments

For a period of time, influenced by complex domestic and international market factors, the A-share market has been under continuous pressure, making it difficult for resource allocation, value discovery, wealth management, and investment functions to be fully utilized.

No matter how the market evolves and develops, it always has its own laws.

Understanding history helps to discover the future.

At present, broadening one's horizons and thinking calmly can help accurately grasp the historical position of the A-share market, see the marginal improvement of the stock market supply and demand relationship, and wait for a series of active market measures to accumulate momentum and take effect.

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The Securities Times launched a series of reports on "Discovering the Investment Value of A-shares", presenting the positive changes happening in the A-share market from multiple angles through in-depth interviews and data mining, in order to build consensus, boost confidence, and jointly promote A-shares out of the doldrums and onto a track of healthy and prosperous development.

This year, China's capital market has continued to deepen high-level opening up in the complex and changing international environment.

Recently, reporters from the Securities Times interviewed foreign institutions such as BlackRock, JPMorgan Chase, HSBC, Citigroup, and Fidelity.

From international investment banks to global top asset management companies, they still have confidence in China's capital market and long-term investment in the face of short-term challenges in China's economic transformation and upgrading.

"China's economy has great potential, vitality, and resilience.

We have always been very optimistic about the long-term development of China's economy and the attractiveness of RMB assets globally," a senior executive of a foreign institution told the reporter of the Securities Times.

Confident in China's capital market, some overseas investors have adopted a phased underweight strategy for China's capital market, which has also attracted market attention.

How confident are foreign institutions in China's capital market?

In this interview, many foreign institutions said that in the face of complex and changing external environments, China's capital market has always adhered to deepening reforms and continuously promoting opening up in multiple dimensions such as institutions, markets, and products.

Many senior executives of foreign institutions operating in China, including banks and securities firms, have expressed optimism about the long-term prospects of China's capital market.

"Overseas investors' views on Chinese stocks have been changing, from underweight to slightly underweight from the fourth quarter of last year to this year, and recently there has been a small amount of selling due to market fluctuations," said Fan Hua, the head of BlackRock China and the chairman of BlackRock Fund, in an interview.

In her view, different countries are in different economic development cycles, and investors can achieve risk diversification by choosing assets in different cycles.

Compared with overseas stocks and bonds, Chinese assets have a good diversification effect, providing international funds with effective risk diversification and income enhancement opportunities.

Fan Hua believes that as the positive signals in the Chinese market increase, such as the improvement in the number of job advertisements, the year-on-year growth of e-commerce, and the continuous optimization of regulatory policies, more and more investors are willing to increase their holdings of Chinese assets.

The long-term healthy development of China's capital market requires continuous efforts to expand the market scale and enhance the market's attractiveness.

In Fan Hua's view, "if you make the cake bigger, the market's beta is considerable, and overseas funds will naturally come in."

At the same time, she believes that domestic institutional investors can also actively "go out" to participate in overseas layout, achieve two-way capital flows, and maintain the long-term healthy development of the market.

Fang Dongming, the head of UBS Global Financial Markets in China, said that the A-share market is undergoing structural transformation towards "investor-oriented" and will continue to deepen reform and opening up, and vigorously promote medium and long-term funds into the market.

As emphasized in the new "nine national conditions," the A-share market has higher strategic importance, and in the long run, a more perfect and effective secondary market can also benefit innovative companies, and cultivate and strengthen new quality production capacity.

Neuberger Berman Fund believes that changes in the global macroeconomic environment directly affect the flow of funds.

In the face of increased market uncertainty, investors will turn to safer investment channels.

The accelerated depreciation of the yen against the US dollar and the weakness of other overseas markets have also promoted the reconfiguration of global funds, leading to some funds flowing into relatively low-valued Chinese assets.

In addition, Neuberger Berman Fund points out that China's economic resilience and long-term positive trend, as well as the government's policy measures to expand domestic demand and improve expectations, still have the potential to attract long-term investors.

In terms of specific investment strategies, overseas investors pay more attention to the transformation and upgrading of China's economy, especially investment opportunities in emerging fields such as new energy, artificial intelligence, and the digital economy.

"Investing in China is a strategic decision, and we are full of confidence in the Chinese market," Neuberger Berman Fund said directly.

Even if the A-share market is relatively low at present, the institution has still raised two equity fund products in the form of initiation.

Optimistic about the global attractiveness of RMB assets, the reporter of the Securities Times observed that against the background of the constantly changing global economic pattern, foreign institutions are still optimistic about the long-term development potential of China's economy.

Facing the current short-term challenges, their confidence and investment in the Chinese market remain unchanged.

Lu Huan, the president of Citibank China and the president and director of Citibank (China), told the reporter of the Securities Times that Citibank has been deeply involved in the Chinese market for more than 120 years, with the main business lines being: Chinese enterprises "going out," the business of multinational companies in China, and providing supporting services for domestic and foreign institutional investors to participate in bilateral markets.

"We are actively applying for securities and futures licenses, which will further improve our business layout in China," he emphasized, and the company will continue to play the role of a "bridge" to connect financial services in different markets.

Wang Yunfeng, the president and CEO of HSBC Bank (China), pointed out that despite facing challenges in the transformation and upgrading process, China still provides long-term growth opportunities for global enterprises and investors, and HSBC is also one of the international financial institutions with the most investment in China.

According to Wang Yunfeng, in recent years, HSBC has invested billions of yuan in mainland China, including increasing its stake in HSBC Life Insurance and HSBC Qianhai Securities, as well as setting up HSBC Financial Technology and HSBC Insurance Brokerage, etc.

In June this year, HSBC China completed the acquisition of Citibank's personal wealth management business in mainland China, once again confirming HSBC's long-term confidence in the Chinese market.

Fan Hua also pointed out that with the improvement of the capital market mechanism and the reshaping of the ecosystem, BlackRock's development in China is facing huge opportunities and broad space.

Huang Xiaoyi, the managing director of Fidelity International China and the general manager of Fidelity Fund, said that the Chinese market has long-term strategic significance for Fidelity, and the company plans to gradually meet the needs of Chinese investors through rich asset allocation capabilities and a diversified product line.

Geng Lin, CEO of Standard Chartered Securities (China), said that Standard Chartered Securities is very optimistic about China's panda bond market and has personally felt the rebound of overseas investors' interest in Chinese bonds.

It is believed that with the opening of the future overseas interest rate cut cycle, the attractiveness of China's bond market will be further improved.

"In the short term, China's economy, due to the transformation to high-quality development, will inevitably face some challenges in the process of new and old momentum replacement.

However, we have always believed that China's economy has great potential, vitality, and resilience, and we have always been very optimistic about the long-term development of China's economy and the attractiveness of RMB assets globally," Geng Lin said.

Bringing an international perspective into China's financial market, in recent years, China has steadily promoted the high-level opening up of the financial market, bringing broader development space for foreign financial institutions and global investors.

For example, the cancellation of investment quota restrictions for QFII/RQFII, the interconnection of bond markets, and the opening up measures such as cross-border wealth management and swap links have attracted widespread attention and welcome from international investors.

Yu Xueqin, the general manager and head of the securities department of J.P. Morgan Securities (China), told the reporter of the Securities Times.

Since China canceled the foreign shareholding ratio restrictions for securities, futures, and other companies in 2020, foreign institutions have taken advantage of the policy to accelerate their layout in the Chinese market.

Up to now, in the securities field, there are 11 foreign-controlled securities firms, including 4 wholly foreign-owned securities firms, namely Goldman Sachs (China) Securities, J.P. Morgan Securities (China), Standard Chartered Securities, and BNP Paribas Securities; in addition, foreign securities firms such as Citigroup Securities and Mizuho Securities are also applying for establishment.

In the public fund field, BlackRock Fund, Fidelity Fund, Neuberger Berman Fund, and other 6 wholly foreign-owned public funds have been established and started operations, and Morgan Asset Management and other 3 Sino-foreign joint venture public funds have officially become wholly foreign-owned public funds.

In the banking field, the "2023-2024 Development Report of Foreign Banks in China" released by the China Banking Association shows that by the end of 2023, banks from 52 countries and regions have established branches in China, and the total number of business institutions of foreign banks has reached 888.

Many foreign securities firms' Chinese businesses have entered the right track.

For example, as the first wholly foreign-owned securities company, J.P. Morgan Securities (China) has achieved profitability for three consecutive years since its official operation in 2020, with projects landing in business such as IPOs, additional issues, corporate bonds, convertible bonds, and merger and acquisition consulting, and has also become the first foreign securities firm to forward research reports to domestic investors under the Hong Kong Stock Connect.

Morgan Stanley Securities has completed 8 A-share IPO projects and participated in multiple merger and acquisition projects to introduce high-quality international strategic investors for Chinese companies, such as Saudi Aramco's acquisition of part of the shares of Rongsheng Petrochemical for 24.6 billion yuan.

In March this year, the company was approved to engage in securities investment consulting business and securities proprietary business.

"Foreign investment banks, with their rich experience accumulated in the international market, are expected to play a core advantage in cross-border due diligence, professional service process construction, corporate value mining, and optimizing the shareholder structure of listed companies," said Qian Jing, the general manager of Morgan Stanley Securities.

This year, "new players" have also made continuous progress.

For example, Standard Chartered Securities (China) officially started operations in March this year and has made initial progress in bond and asset-backed securities (ABS) underwriting business; BNP Paribas Securities was approved in April, established in July, and quickly obtained multiple licenses such as securities brokerage and securities proprietary; in June this year, the establishment application of Mizuho Securities was accepted by the China Securities Regulatory Commission, and regulatory feedback was received at the beginning of September.

The active layout of these foreign securities firms shows their long-term confidence and strategic investment in the Chinese market.In the public fundraising and wealth management sectors, foreign institutions continue to leverage their cross-border asset management advantages, bringing global perspectives, product applications, and investment education experiences to the Chinese market.

For instance, BlackRock established the first wholly foreign-owned public fundraising fund in China in 2020 and 2021, BlackRock Fund, as well as one of the first joint venture wealth management companies, BlackRock-CCB Wealth Management, and has increased its capital investment multiple times over the past few years.

Currently, BlackRock Fund has issued a total of 9 public fundraising fund products; BlackRock-CCB Wealth Management has eight series with 110 public fundraising and one private wealth management financial products (in existence).

Fidelity obtained the wholly foreign-owned public fundraising fund license at the end of 2022 and officially started public fundraising fund business from February 2023, successfully issuing multiple equity and bond funds.

Neuberger Berman obtained the public fundraising fund business license in November 2022 and has successfully raised funds for 8 public products in nearly two years, including the first green bond fund by a foreign public fundraising institution.

Wang Yunfeng pointed out that with the continuous advancement of high-level opening in China's financial industry, the convenience of cross-border investment and financing will continue to improve in the future, attracting more foreign investors to participate in China's financial market.

Facing challenges and looking forward to more policy support, it is worth noting that currently, many foreign institutions still face many challenges in China, such as high business costs, high thresholds for business license applications, and difficulties in attracting long-term funds, which to some extent limit the foreign institutions' ability to leverage their strengths.

Wang Ge, General Manager of DBS Securities, pointed out that the characteristic of foreign securities firms is that they are both independent legal entities and part of the entire multinational group.

Therefore, their way of survival is to fully utilize the group's strength in cross-border services, and the synergy of group resources is their core competitiveness.

Therefore, in terms of license application, it is hoped that the group's relevant product experience and comprehensive strength will be included in the consideration factors, so as to effectively coordinate and leverage the group's product and resource advantages, providing customers with high-quality comprehensive financial services.

Fan Hua also mentioned that under the current market environment, investors generally have a low risk preference, and it is difficult to attract long-term funds.

She hopes that as the market situation improves, the money-making effect can gradually emerge, attracting investors to make more diversified and long-term investment layouts.

Looking forward to the future, foreign institutions still have a positive attitude towards the Chinese market.

Many foreign executives have said that a good business environment is the key to encouraging foreign investment to increase investment in China for a long time.

Huang Xiaoyi pointed out that from the perspective of foreign participants in the public fundraising industry, it is hoped that under the premise of ensuring the stability of China's financial system, further exploration and international regulatory methods will be explored, especially in the setting of business qualification thresholds, more consideration should be given to the history, scale, and experience of foreign institutions globally.

"We look forward to some policy support in the fields of pension fund management, cross-border investment, and research sharing, bringing more diversified investment options to domestic investors."

Yu Xueqin believes that it is necessary to encourage pension funds and other long-term asset managers to enter the market, and attract more overseas investors, including hedge funds and insurance companies, to participate in the Chinese market.

These measures will help to further increase the market's trading volume, liquidity, and enhance market vitality, while playing a role as a "stabilizer" for various professional investors in the market to a certain extent.