[London, 6th Archyde.com]-China is the only major country / region to attract foreign investors in that it can expect a recovery in economic growth this year. But at the same time, there are also factors that discourage their willingness to invest. It is a concern that China will one day be excluded from the world’s financial markets like Russia.
The scale and coordination of Western economic sanctions once morest Russia, which invaded Ukraine, has stunned the market, causing billions of investment managers to suddenly lose billions of dollars overnight.
In the case of China, since the economic scale and the amount of investment by foreigners are orders of magnitude higher than those of Russia, it is unlikely that similar sanctions will be imposed on Russia, but for many investors this is one of the risks that cannot be ignored. It can be said that there is one.
Bill Campbell, portfolio manager at Doubleline Capital, which drives $ 122 billion in assets, said, “In the world of international investors, new geopolitical events will impose very strict sanctions in line with precedent. It was well known that the system was already in place. “
Double-line CEO Jeffrey Gandrac said China was forced to delist without notice, and Alibaba’s financial subsidiary Ant Group was listed at the last minute in late 2020. It has been marked as impossible to invest, citing that it was postponed in.
Campbell said tensions over Taiwan and the South China Sea might spark a full-blown conflict between China and the West, while a “new paradigm” was launched in which geopolitical events might have an immediate impact on investment and indices. He said he was doing it.
China has a very large weight in major equity and bond indexes, forcing investors to devote some money to portfolio management. The Double Line is devising ways to purchase assets from neighboring countries and bonds from regional development banks in order to avoid excessive direct investment in China.
Sino-US relations have been tense for many years in various areas such as international trade and intellectual property rights. However, the US government has recently warned strongly that if China helps Russia invade Ukraine, it will have serious consequences. Last week, the U.S. government added five Chinese companies to sanctions for supporting Russia’s military industry. A bill was also submitted to the US Senate that might impose sanctions if China invaded Taiwan.
Flavio Carpentano, investment director of Capital Group, which manages $ 2.6 trillion in assets, reduced investment in Chinese government bonds following Russia’s invasion of Ukraine. “We don’t think we can’t invest in China or think that a Taiwanese emergency will happen tomorrow, but volatility will remain high. I think Chinese government bond yields factor in this kind of volatility. I won’t be able to do it. “
BlackRock, the world’s largest asset management company and has long maintained a bullish stance toward China, also lowered its investment decision on Chinese stocks in May, warning that the risk of military conflict between China and Taiwan will increase in the future. rice field.
According to the Institute of International Finance (IIF), foreign investors withdrew more than $ 30 billion from China in January-March. The background is lockdown (city blockade) to prevent infection with the new coronavirus and rising US Treasury yields. However, the IIF points out that “recognizing the risk of investing in countries with poor relations with the West” also had an effect.
Meanwhile, in June, $ 11 billion was deducted from foreign stocks on Chinese-listed stocks because the Chinese economy was recovering, in contrast to Western countries being scared of recession. You can see it from the data of the refinitive icon.
Mike Kelley, multi-asset manager at Pinebridge Investments, said, “We expect prices to rise and there aren’t enough investment destinations to buy right now.” Pinebridge holds dollar-denominated bonds in the Chinese real estate sector, and Chinese stocks are moving to buy once more.
Investors looking to buy Chinese assets shouldn’t have absolute peace of mind, Kelly said, but are convinced that “if China does anything regarding Taiwan, it’s not within the next two years.” Is said to have.
Many experts say that the huge Chinese economy and the size of the market itself reduce the probability of sanctions being imposed. With poor sanctions, the side effects suffered by the West will no longer be comparable to Russia. The negative impact on global financial markets will be much greater.
According to JP Morgan’s estimates, the foreign ownership ratio of Chinese stocks is 5%. In addition, Chinese stocks have a weight of 40% in various emerging market stock indexes, and Chinese bonds also account for 10% of JP Morgan’s GBI emerging market bond index, so the amount of foreign investment in index-linked products is considerable. On a scale, it can be a daunting task when imposing sanctions.
Before the invasion of Ukraine, Russian bonds weighed 6.1% in the GBI Emerging Markets Bond Index.
Still, a major bank’s head of emerging market strategy has told Archyde.com a series of questions from clients regarding what to do with China’s investment in the wake of the war between Russia and Ukraine. According to the person in charge, customers are wondering how much money to allocate to markets that may not be able to withdraw immediately.
Investors involved in China ultimately need to be prepared for sudden changes, Kelly of Pinebridge said. He explained that there is a risk in China that he will be in a position to invest in Russia and be swayed by President Putin’s intentions and suddenly get stuck one day.
(Reporters by Sujata Rao and Tommy Wilkes)
