Call for new thinking on China, India allocations
Investors need to come up with new and better ways to address their exposure to China and India, according to asset owners at a recent forum.
The large asset owners affirmed their belief in the benefits of long-term investing, which they said helps them deal with the challenges of allocating to the region’s two big growth markets, China and India.
But they pointed out the effect that disruptive financial technology was having on markets, especially in e-commerce, which meant identifying and investing early in the future growth sectors.
Richard Tang, chief executive of ICBC Credit Suisse Asset Management, commented that global investors are still not really looking at China in the right way.
“If people use traditional categorisations based on their experience of the US market,” he said, “can that formula be applied to the current situation in China? I don’t think so. They need to understand China is very different,” he said on a panel at the FT Investment Management Summit in Hong Kong last Thursday,
Equally, he said there was probably not enough understanding of how renminbi flows out of China will alter the dynamics of asset management in the region.
“We see a huge trend. RMB products and asset management will grow tremendously,” Tang said. “This is the largest opportunity for the asset management community worldwide, which is why centres such as Luxembourg and London are promoting RMB business so strongly.”
Tang was joined on the panel by senior Asia-based executives at two of the largest Canadian pension funds, managing a combined $400 billion of pension assets.
Ted Lee, senior portfolio manager for public markets with Canada Pension Plan Investment Board Asia, said: “We are a long-term investor and as such we are looking at the next quarter of a century, not at the next quarter’s earnings.”
In terms of its exposure to China, Lee suggested that the CPPIB is ready to go with benchmarking to revised regional and emerging market indexes, taking into account a fuller weighting towards A shares. But equally, he said: “There are already plenty of ways to access the A-share market. We are finding some of the simpler options [ETF listings overseas, for example] are working quite effectively.”
Lee also said that while it was very easy to say one would use MSCI or FTSE to put together a picture of what a China allocation should look like, “it’s clear you can’t use the same metrics any more. You can’t just take an index [with China components] at face value. You need to look much more closely at the make-up of the index and what you are trying to achieve.”
Dan Kiang, Asia director of the Ontario Teachers’ Pension Plan said he was in a similar situation: “Our liabilities are very long term in nature and one of the things we are addressing in this new environment is disruption,” he said.
He pointed to the Chinese version of the online taxi service Uber, called Didi Kuaidi, which already sells 4.5 million rides a day on the mainland, while Uber has a million of its own.
In India, Kiang said that more than 60% of e-commerce was taking place on mobile phones: “There’s a huge opportunity for the e-commerce players to be disruptive,” including in financial services.
CPPIB was an early adopter in India, setting up only its second office outside Canada in Mumbai. Lee said: “We believe in the growth story. It’s not a question of timing the market.”
Lee agreed that in India, outside of infrastructure, e-commerce was the key for many investors.