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How Will Global Financial Firms’ China Strategies Evolve Amid Covid-19 Flare-Ups?
Zhou Ailin
DATE:  Apr 29 2022
/ SOURCE:  Yicai
How Will Global Financial Firms’ China Strategies Evolve Amid Covid-19 Flare-Ups? How Will Global Financial Firms’ China Strategies Evolve Amid Covid-19 Flare-Ups?

(Yicai Global) April 29 -- Shanghai, China’s international financial center, has entered the fifth week of lockdown amid the Covid-19 outbreak in the city.

But the current resurgence of the virus has not prompted a change in the China strategies of global investment banks and asset managers, though some quarters may doubt their determination, insiders at some of the firms told Yicai Global.

Despite the impact of Covid-19 outbreaks and the recent temporary outflow of foreign capital from the Chinese market, overseas financial institutions look set to continue increasing investment in Chinese assets over the medium and long term.

Faster Hiring

Global financial firms still plan to accelerate recruitment in the Chinese mainland in spite of the Covid-19 outbreak in the country, according to sources. Though some quarters may doubt their determination, insiders said, the hiring push is picking up pace, with more focus on attracting local talent.

Goldman Sachs, J.P. Morgan Chase, and Credit Suisse Group have each taken bigger ownership stakes in their China joint ventures, as the country further opened its financial market in the past two years. J.P. Morgan and Goldman Sachs got the go-ahead last year to become the first two overseas firms to fully own a securities brokerage in China. Credit Suisse and others are awaiting similar approval.

“We speed up recruitment when trying to secure other licenses,” a source at one of the banks said.

Goldman Sachs told Yicai Global it has already surpassed a five-year plan set out in 2019 to double the number of employees in China to 600. And it recently posted a notice on its WeChat account, looking to take on a large number of new staff in mainland cities such as Beijing, Shanghai, and Shenzhen. The jobs cover investment banking, asset and wealth management, risk control, taxation, internal auditing, and global research.

The market’s size and long-term prospects are the main factors behind the banks wanting to grow their presence in China, despite the recent Covid-19 outbreak and temporary outflow of foreign capital.

Refinancing and convertible bonds were the highlight of the Asia-Pacific market in 2021. Going forward, Chinese companies listed on overseas exchanges will speed up secondary listings in Hong Kong, while the mainland stock market will see new growth in foreign business. 

New Products

Overseas fund managers continue to bring out and promote products in China, and some are even hiring, despite delays in getting regulatory approval amid the ongoing Covid-19 outbreaks and accompanying lockdowns.

Foreign-owned private fund managers are forging ahead with plans to increase their share of China’s estimated CNY120 trillion (USD18 trillion) wealth management market. Many have set up publicly offered funds, some are raising money from investors in non-public ways, while others have launched Asian stock funds and even plan to debut metaverse-themed funds.

Others continue to push Qualified Domestic Limited Partner products, an outbound investment scheme that allows high net-worth Chinese individuals to buy into overseas fund products. Some are deepening their collaboration with local banks to form wealth management joint ventures. Many are hiring.

But the Asset Management Association of China is temporarily unable to review new products because of the Covid-19 outbreaks. And Shanghai, where most of the global financial institutions have their China base, is now in its fifth week of lockdown. Seventeen out of the world’s top 20 asset managers had operations in the city as of 2020, and 29 out of the 33 overseas private equity fund managers registered with the AMAC are also located in Shanghai.

Despite the challenges, asset managers still manage to make progress. An elderly-care wealth management product set up by the JV between US investment giant BlackRock and China Construction Bank’s wealth management unit was granted a product code on April 18 and is about to be launched.

Schroder BoCom Wealth Management unveiled two products amid the latest wave of the pandemic which has raised CNY3 billion (USD454.4 million) so far.

Bridgewater Associates, the world’s biggest hedge fund manager, has more than CNY10 billion (USD1.6 billion) of Chinese private equity funds under management. The net asset value of its new China fund reached USD1.06 billion at the end of last month and is now positioned in the mainland’s stock, bond, and commodity markets. The Connecticut-based firm is hiring salespeople and other staff in China.

US investment manager Neuberger Berman Group is waiting for an on-site inspection to start its public fund business, while the kickoff of Fidelity International’s public fund has been postponed.

Amundi BOC Wealth Management, which has so far operated for one and a half years, now manages nearly CNY100 billion (USD15.1 billion) and it is still launching financial products.

Outflow Blip

The CNY110 billion (USD16.7 billion) that flowed out of China’s bond market last month was just 0.09 percent of the total held in custody, insiders at some of the firms told Yicai Global. Short-term outflows will not change the long-term trend of overseas financial institutions increasing investments in Chinese assets, they noted.

Overseas investors will take into account the country’s political and economic fundamentals, currency stability, general risk, and other factors when making investment decisions, a head trader at a large state-owned bank told Yicai Global.

Another CNY80 billion (USD12.2 billion) was withdrawn in February, according to data from the China Central Depositary and Clearing and the Shanghai Clearing House. In comparison, nearly CNY700 billion flowed into the bond market last year. The value of northbound outflows from the mainland market was nearly CNY26 billion this year, while last year’s net inflow soared to a record CNY400 billion.

This year, the Chinese bond market will still benefit from its inclusion in the FTSE World Government Bond Index, Zhang Meng, macro and forex strategy analyst at Barclays China, told Yicai Global. This will attract passive funds, with the inflow likely exceeding USD10 billion per quarter, she added, noting that the total for the year will still remain below the figures for last year and 2020.

The Shanghai Composite Index [SHA: 000001] fell below 2,900 on April 26, the lowest since May 24, 2020.

“China isn't ‘uninvestable’ at all, and there are no so-called uninvestable assets in the world,” according to Diao Yang, founder of financial planning services provider Paradigm Advisors. “The key is price.”

The valuations of many Chinese stocks listed overseas and in Hong Kong do not match their long-term fundamentals and cash flows, and they “actually represent long-term investment opportunities.

“Investment returns are based on convictions, and short-term assets prices have nothing to do with valuations,” Diao noted.

For most institutions, the long-term trends of technology and carbon neutrality in China are irreversible. There are many tech firms in the country, led by their founders and teams, who are carefully burnishing good products to improve efficiency, cut costs, make breakthroughs, and change the world. For the capital market, when the money-making effect comes again, capital will naturally return.

Editor: Futura Contaglione

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Keywords:   Shanghai,Finance