Global ViewTakeaways from Our Hong Kong Investment Forum
Twice a year, our investment professionals from around the world meet at our Investment Forum to exchange ideas on the issues that matter most to our clients, including new macroeconomic and market developments and long-term investment themes. Our first Investment Forum of 2017 was held in the vibrant city of Hong Kong – a fitting location for an event with China as the lead agenda topic. Here are some of the highlights of our discussions.Perspective on the Asia Pacific
Extracting Alpha from China’s Equity Markets
When many investors think about China today, they focus on a few well-publicized macroeconomic concerns: property bubbles, non-performing loans in the banking system or the renminbi’s weakness against the US dollar. In our view, these are all valid issues, but we see investing in China as more of a bottom-up story – one that can reward active investors who understand the size and subtleties of a booming marketplace.
Consider that there are now more than 4,200 Chinese companies listed on stock exchanges around the world – mostly in Shanghai, Shenzhen, Hong Kong and the US – with a total market-capitalization size of USD 10 trillion. That means there are more listed companies in China than in the US. As in the US, the sheer size of this group means there are always interesting companies to be found. But unlike in the US, many inefficiencies still exist in China’s equity markets – and it is here where active managers have an opportunity to deliver alpha to investors.
The Capital-Market Implications of China as an Asset Class
For investors, China can be a polarizing subject. A few years ago, many believed the country would play a crucial role in pulling the global economy out of the Great Financial Crisis, and that China’s growing economic power would be the most compelling investment story of the 21st century. For other investors, the extreme market volatility of recent years has given rise to growing concerns about the credit-fuelled nature of China’s economic development, and worries about whether China will successfully make its much-needed “rebalancing” transition to a different type of growth model.
But whether you’re a China bull or a China bear, China’s capital markets will likely become significantly more important to the global financial system in the coming years. And as China’s capital markets become truly accessible to global investors for the first time, investors may need to rethink the way they will access China in the future.
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