(Yicai) April 21 -- Chinese assets are moving from an “optional” allocation in international portfolios to a “must-have,” chief economists from major foreign financial institutions such as Morgan Stanley and Standard Chartered said at a recent forum in Shanghai where key topics such as the institutional opening-up of the inter-bank market and global capital allocation were discussed.

This trend is “the inevitable outcome of diversified global capital allocation,” Xing Ziqiang, chief economist for China at New York-based Morgan Stanley, said at the “Global Financial Institutions Enter China’s Financial Market” forum held on April 17 which was attended by representatives from nearly 60 financial institutions from 20 countries and regions.

Under the macro backdrop of “stability in the East and volatility in the West,” global investors are gradually reducing their reliance on single-currency assets like the US dollar, and Chinese yuan-denominated assets are likely to continue attracting inflows as portfolios are rebalanced, Xing said.

A few years ago, international investors regarded Chinese assets as “uninvestable,” but that perception has clearly shifted in recent years, said Ding Shuang, managing director of Standard Chartered and chief economist for China and North Asia at the UK lender.

The renewed interest in Chinese assets is being driven by rising uncertainty about the external environment, as well as growing profit expectations fueled by China’s continued investment in areas such as artificial intelligence and new energy, he said.

As China’s market scale expands and trading mechanisms improve, international investors are no longer treating China as a regional add-on, but increasingly as a core part of their global portfolios, said Shu Chang, chief economist for Asia-Pacific at Bloomberg. More importantly, the allocation of Chinese assets is shifting from passive to active, she added.

“What underpins asset performance is structural change in the economy, not just a single cyclical fluctuation,” Shu said. "Technological innovation and green transition are forming a new underlying asset logic, providing markets with more sustainable sources of profit."

However, challenges remain if China wants to move from “structural improvement” to “sustained gains in asset returns,” Xing said. Current yields from yuan-denominated assets remain relatively low, largely due to weak domestic demand and low inflation.

Without stronger consumption, it will be difficult for corporate earnings to improve broadly and for asset returns to rise significantly, he added. Boosting consumption requires reforms in income distribution, including better social security cover and transfer payments to reduce precautionary savings.

Editor: Kim Taylor