80% of institutional investors planning to raise allocations to China: survey
Four in five (80 per cent) global institutional investors are planning to significantly or moderately increase their allocations to investments in China over the next 12 months, according to a survey commissioned by Invesco.
The survey of 411 asset owners and institutional investors from North America, Asia Pacific and Europe, the Middle East and Africa, found that, in comparison, only four per cent are planning to reduce their exposure to China.
Nearly 90 per cent of respondents have investments — including equities, fixed income or alternative assets — that are deliberately China-specific and not part of a broader regional grouping or some other subcategory. As for the 10 per cent without a China-specific allocation, two-thirds said they still pursued China exposure through a broader global, Asia or emerging-market basket of investments.
“The findings are promising and support our view that China’s massive growth and continuing efforts to allow greater access to its markets represents a significant and increasingly attractive opportunity for both domestic and global investors,” said Marty Flanagan, president and chief executive officer of Invesco, in the report.
According to respondents without a dedicated China allocation, the top challenge to investing is the lack of transparency in the financial system for foreign investors (39.5 per cent). More than 30 per cent of this group cited concerns about legal protections, economic stability and lack of trusted financial intermediaries as challenges. And more than 50 per cent said stronger legal protections for foreign investors might make their organization consider dedicated China exposure.
The majority (87 per cent) of investors with dedicated allocations said they’re maintaining their Chinese positions for portfolio diversification, followed by gaining experience for internal teams (69 per cent) and seeking alpha (62 per cent). More than three-quarters (77 per cent) said they felt these objectives had been met, with 21 per cent saying it’s too early to tell and just one per cent saying their objectives hadn’t been met.
Technological innovation (58 per cent) was a popular investment theme, encompassing artificial intelligence and robotics. Invesco noted the popularity of technology was “in line with China’s rising position as a global leader in technological development.” Other common themes were financial services (51 per cent) and so-called new economy services (41 per cent), which include health care, information technology and education. Almost four in ten (39 per cent) North American investors said they’re invested in Chinese renewable energy.
Broadly, the survey respondents said they positive about the economic outlook globally and in China. Two-thirds said they believe global economic conditions will be better over the next 12 months than they are currently, while nearly three-quarters said the same about China.
While North American investors were the most bullish on both global and Chinese economic conditions, with 80 per cent saying they expect improved conditions, investors from other regions said they favour China’s chances relative to the world at large.
Almost three-quarters (73.5 per cent) of European, Middle Eastern and African investors said they believe Chinese economic conditions would improve in the next 12 months, as opposed to 65 per cent that said they believe global conditions will get better. Investors in Asia Pacific were the most cautious, with 66 per cent saying China’s economic conditions would improve, and 53 per cent saying the same of global conditions.