Quietly, Luxembourg has built substantial fund investment access to the Chinese market. This was highlighted at the “Access Channels” roundtable at Luxembourg for Finance’s China Finance Forum 2021. With Chinese markets being some of the fastest growing in the world, little wonder the appeal to global asset managers of this market via the Luxembourg route is strong.
Luxembourg-domiciled funds account for 43% of global fund investment into China, with 80% of all European fund investment access via this route, said Charlotte Chen, Counsel with the law firm Elvinger Hoss, Hong Kong. One of the reasons for this position is that “Luxembourg was one of the early adopters of the Connect programme,” said Tae Yoo (photo), Managing Director, of trading services firm HKEX. Connect gives access to Chinese equity and bond markets to international investors, and Teo Yoo pointed to the work of Luxembourg for finance and ALFI facilitating these connections.
Growing internationalisation
It’s a growth area, and it is driving greater internationalisation. Total assets under custody for equities through the Stock Connect programme is roughly around 2.3 trillion renminbi (€292bn), almost double the figure at the start of 2020. Moreover, Teo Yoo was encouraged to see market players such as custodians as well as the brokers “finding creative ways to offer various different services to northbound [Hong Kong to mainland China] investors.”
He noted that there are now more than 2,500 approved investors in the bond connect programme across 34 jurisdictions, with over 60 new investors coming in the month of April alone. For the stock Connect programme there are more than 12,500 accounts, an increase of nearly two-thirds on 18 months ago.
He also pointed to the figures for southbound investment, with mainland Chinese investors holding over 2.7 trillion Hong Kong dollars (€284bn) worth of assets in Hong Kong. “Mainland investors are trading over 13% of the turnover in Hong Kong cash stock market,” he said as mainly institutional investors seek diversification and to gain experience of this jurisdiction.
ESG and aging population
As for future growth areas, Tae Yoo mentioned ESG and dealing with China’s aging population. He pointed to the Xi administration’s goal set last September of carbon net zero by 2060, which he noted will require a shift of 85% of China’s energy usage from fossil fuels to renewable energy.
“The other element that international investors tell us they’re monitoring now is how China copes with its ageing population,” he said. This relates to pension funds which need to diversify their investments internationally, and this will favour hubs like Hong Kong. There are also concerns about supplying the equipment and medicines elderly people will need, which is driving investment into biotech, and biomedicine.
Tomorrow we will review the LFF panel entitled “What comes next?” for the internationalization of Chinese investment markets