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Research Reports » BNP Paribas Jan 2020

Executive interview: Releasing the brakes

Annie_ShumAnnie Shum, institutional business deputy head at CSOP Asset Management, examines the institutionalisation and internationalisation of China’s capital market, setting up shop in Singapore and the appeal of the city state’s recently launched Variable Capital Company.

What is your broad outlook on China in 2020?
We continue to be positive on China equities, particularly the onshore A-shares. As the US and China signed the Phase One deal, the hopes are that this will bring some clarity and stability to the trade dispute between the two countries and be supportive towards China’s capital markets. We are also looking at various investment strategies that can provide a hedging effect to volatilities experienced across global markets.

According to the World Bank, China’s economic growth rate is forecast to slow to 5.9% this year for the first time since 1990. Are you concerned by this or does it reflect a shift towards quality growth?
The slowdown has been widely talked about and consensually anticipated as China now pursues stable and quality growth, shifting from investment-driven to consumption-driven, whereby consumption now accounts for more than 60% of China’s economic growth. Even with the gradual slowdown of the growth rate, China is still among the economies that generate the fastest growth globally. We believe this normalisation of China’s economic growth rate will only prove to make its growth more sustainable and realistic over the long term.

Overseas sentiment towards A-shares is significantly lower compared to this time last year, according to the CSOP China Sentiment Index. What are the reasons behind this, and do you think it is a temporary or prolonged lull?
We believe that sentiment was partly affected by the trade conflict, but we’ve seen confidence recovering in December after the US and China announced the Phase One deal. In December, we saw decent inflow into the CSOP FTSE China A50 ETF (2822.HK), amounting to US$307 million. The top three A-share ETFs with the most inflows were 2822.HK, 2823.HK and 3188.HK with a total inflow of US$731 million, and 2822.HK made up about 42% of that month’s inflow.

Meanwhile, northbound inflow into the A-share market through the Stock Connect scheme reached 352 billion renminbi in 2019 – a record high, thanks to the index inclusion (and expansion) by MSCI, FTSE and other global index providers. Despite short-term volatilities, institutional investors continue to increase their allocation to the A-share market; therefore, from a long-term perspective, we are confident that the A-share market will continue to attract more capital inflow.

China is set to make sizeable changes this year, including scrapping foreign ownership limits on the futures, brokerage and mutual fund sectors. How will this affect foreign investors, and do you think it will help the domestic finance industry mature?
The moves meet our expectation as China continues to liberalise its capital market and welcomes foreign industry participants to enter the space. The participation of foreign financial institutions in China market will help to accelerate the institutionalisation and internationalisation of China’s capital market. We believe they will introduce internationally recognised industry standards and best practices into the Chinese market and, in turn, make investing in China more palatable to investors from developed markets.

In 2019, CSOP Asset Management opened an office in Singapore in a first for the firm outside of its home base of Hong Kong. What are your top business priorities for the next 12 months both in Hong Kong and Singapore?
At CSOP, our business priority has always been to bring differentiated and innovative products strategies to investors, to offer them more efficient ways of accessing different asset classes and managing their investments. With this goal in mind, we continue to explore proprietary investment ideas and strategies that we believe will further enhance market accessibility to investors and develop these ideas into products suitable for investors’ different needs.

What makes Singapore a natural choice to set up shop for CSOP?
Being headquartered in Hong Kong has allowed CSOP very good coverage of Greater China and north Asia markets. As we expand our reach across Asia, Singapore turns into an important hub for us to cover southeast Asian countries from, especially when many of these clients also look to book their trades through Singapore. Its well-established and transparent legal, financial and regulatory systems also make it a natural choice for us.

What are the advantages of having a local vehicle for each region?
While fund passporting has been gaining popularity in recent years, we observe that each region still has many of its own market-specific requirements that can only be fully satisfied by local vehicles. While the requirement of having local vehicles is less stringent for institutional investors, who enjoy the flexibility of investing across markets globally, we find that local vehicles are more popular for distribution platforms and retail investors, who take comfort in investing in vehicles from a jurisdiction they’re most familiar and comfortable with.

The Singapore Variable Capital Company (VCC) is a multi-purpose tool that covers both traditional and alternative assets. Why is it appealing for Chinese asset managers?
We appreciate the flexibility that the Singapore VCC offers, which will allow us to be able to launch different strategies under the convenience of one single umbrella structure. When expanding outside of their home market, asset managers often find it costly to understand, set up and maintain different fund structures and vehicles to fit various investment strategies. We think the VCC structure will be appealing to asset managers looking for an efficient way of managing different strategies in a single vehicle.

Are you expecting more European interest in China this year and how are you looking to tap into the business and investment opportunities?
With the different index inclusion measures and the opening up of China’s capital markets, we are seeing a new wave of interest from foreign investors looking to tap into China’s domestic markets. European investors are certainly among those who are looking for ways to access China. We have been speaking with institutional investors about China for years, providing education and market updates to those who are trying to get comfortable about building that exposure. We are committed to building a long-term relationship with investors and providing them with support to understand and access the market.

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