Yesterday we saw how Luxembourg is playing a significant role helping international investors gain exposure to the Chinese market. Yet what about the movement in the other direction, as Chinese investors seek to diversify into other markets? This question was explored by a panel of locally-based experts at Luxembourg For Finance’s China Finance Forum 2021.
“We can see several areas where the sector is currently changing,” said Stéphane Karolczuk, Partner and Head of Hong Kong Office with Luxembourg law firm Arendt & Medernach. There is a move towards more institutional investment, as this internationalisation trend has been driven largely by the retail sector so far, particularly regarding pension savings. He then pointed to the move away from retail bank dominated distribution models towards more tech-driven solutions. Then the sector is becoming more specialised, and the Chinese capital market is becoming more interconnected globally.
Increasing Chinese presence
Asset managers are also, slowly increasingly their presence on the Chinese market to offer international services. Eric Bruce, Global Client Director of Aberdeen Standard Investments described this evolution from his firm’s perspective. “We have a structure on the ground in China since 2015, and it’s been registered with the Asset Management Association of China in 2017, and we are able to offer services to domestic investors and investment advisory services to Chinese product providers,” he said. They are in a privileged position as there are only nine companies with such presence at the moment.
Bruce said that the drive behind this trend is the desire to offer pensions to the country’s aging population, and he predicted this market could grow to as much as 5trn USD in ten years. However, he said for this full potential to be achieved there would need to be reforms such as auto enrolment measures and tax incentives. He also highlighted the growth of bank wealth management, largely through joint ventures, with so far about 30 of overseas players registered.
Brutally competitive
If that sounds enticing for global asset managers and wealth managers, Stefano Chao, General Manager and CIO of Azimut Investment Management in Shanghai had a warning. “This is a brutally competitive market. There are 8,000 plus private fund managers, there are about 150 mutual fund managers, subsidiary asset management companies, banks and trust companies,” he said. “There is reason to be bullish overall, but not everybody who comes into this market will succeed.” He also noted the fast pace of growth is being felt in the rise of costs.
As well as institutions becoming increasingly interested in diversification, Chao noted that retail investors are becoming more sophisticated. “Increasingly they want to know about more than past returns, but also aspects like the quality of risk management, which I think is a strong selling point for foreign asset managers.”