In private, foreign investors are critical of Beijing for what they see as its overly interventionist approach to markets, whether in respect of capital controls, stock trading, private fund managers or various other issues. However, they tend to be more reluctant to air such views in public.
Yet a senior executive from HSBC Private Bank pulled no punches at a panel last week at the FT Investment Management Summit Asia in Hong Kong.
Chinese regulators "intervene too much", said Fan Cheuk-Wan, Asia head of investment strategy at HSBC Private Bank. "[What] I might advise to Chinese policy makers is to leave the equity market alone, and don't attempt to direct the movements of capital markets. This is a dangerous game.”
Mainland regulators need to learn this lesson and address international investors' concerns, noted Fan. Foreign investors want the government to stay out of the market and focus on the supervision and transparency of regulation, she added.
Beijing’s interventions have if anything become increasingly frequent in recent years, as China’s capital market liberalisation has gained momentum.
Perhaps the most recent and obvious example of such policies, was the imposition of a stock-trading ‘circuit-breaker’ at the start of this year designed to stabilise the equity market, which had been tanking for several months. The move had the opposite effect, exacerbating the volatility, and was duly abandoned within a week.
And many feel that MSCI’s decision last week not to include Chinese stocks in its global emerging-market indices is partly because foreign investors remain unconvinced that Beijing will do what it says in terms of regulation. Indeed, such concerns over the lack of regulatory certainty are discouraging many overseas allocators from putting their money to work in mainland bonds and equities generally.
Fan did, however, concede that mainland macroeconomic and policy risks were reflected in the high risk premium of China’s equity markets.
Her fellow panelists were more circumspect in their comments.
Zhong Xiaofeng, CEO for North Asia at French fund house Amundi, said it was too early to judge what happened last summer and early this year, referring to the stock-market rout that began in June and the abortive introduction of the circuit-breaker. He suggested it was necessary to take a longer view.
Meanwhile, Jack Wang, deputy chief marketing officer at Hong Kong-based CSOP Asset Management, said intervention itself was not a problem, but that it was the degree of intervention and the approach taken that were important.
“In every market in the world, when there is a crash, the government intervenes – even in the US,” Wang said, suggesting this was a natural response if an index is falling 8% or 9% every day. “So the government has the right to protect investors when the market crashes.”
That said, foreign investors still want to see Chinese market moving closer to international standards and ratings, conceded Amundi’s Zhong.
Beijing wants to attract overseas institutional investors into mainland equities and bonds, but there are many things left to resolve in areas such as market infrastructure, credit ratings and research, Zhong said, and that will take time.
Only when these obstacles are overcome will overseas investors be comfortable with issues such as foreign exchange, capital accounts, repatriation and dividends, he added.
Separately, CSOP’s Wang said there was one big problem in the Chinese stock market: it has a high proportion of retail investors, who have relatively short holding periods, which results in major price volatility, he noted.
But the good thing is that government is encouraging investors to put money in pension plans, which is similar to what the US did in developing the 401k plan and Japan did in creating its retirement system, said Wang.
The point is that one must get retail investors to change their investment habits, he added, and not only change the structure of the market.