International investors are keen to boost their stakes in China’s markets, but those already using the QFII and RQFII channels to invest in the Mainland aren’t in a massive hurry to change to such new, China-focused investment channels as the Stock Connect and Bond Connect regimes, new Standard Chartered research has revealed.
The two Stock Connect trading links are already up and running, while the Bond Connect system is expected to launch in early July. It is open to all investors and has been designed to provide scalability, simple access and a familiar legal jurisdiction in Hong Kong, but the Standard Chartered research suggests that some work may need to be done before global investors fully embrace it.
Ultimately, though, they will, the StanChartered researchers explain: “As the pool of foreign investors in China grows, it is likely these newer allocators will increasingly use Stock Connect and CIBM at the expensive of QFII and RQFII. Just 1.9% of all respondents confirmed they would look at QFII as an access channel moving forward, highlighting the fact that these mechanism have now been surpassed in qualitative terms.
“This is further underlined as QFII and RQFII levels are operating below full capacity, with 50% of quotas on average being used by foreign investors.”
The release of the Standard Chartered research results last week, contained in a 32-page white paper entitled RMB Internationalisation in 2017: Change, alignment and maturity, coincided with last week’s announcement by the MSCI that it would include Mainland Chinese stocks in its global benchmark equity index for the first time. This means that those investment funds which track the index, currently said to be worth an estimated US$1.6trn in total, will be obliged to begin buying Chinese A shares next year.
Other key findings of the Standard Chartered research included a noticeably greater interest in China as an investment priority among those investors who responded to the survey this year than was the case last year, with 60% saying the country was a “top three priority” for them, an increase of 20% from 2016.
According to the report, “52.8% of investors maintained their China exposure at existing levels during the preceding 12 months, whereas 36.1% increased their holdings.
“Just 11.1% said they [had] scaled back on China.”
Barnaby Nelson, regional head, securities services for Standard Chartered’s Greater China and Northeast Asia region, said in a statement accompanying the research that, after a relatively cool 12 months with respect to investing in 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,” he added.
More than 900 investors, from Asia, Europe and the US, participated in the survey, Standard Chartered said, including a cross-section of participants from the “investment cycle”, including insurers, pension funds, asset managers, private banks, investment banks, brokerages and market players.
It was conducted from March through April 2017, using both qualitative and quantitative methods.
To access the necessary link to download a copy of the document, click here.