As some asset owners turn cautious on Chinese assets, Middle Eastern funds continue to increase allocations to the country, with the Abu Dhabi Investment Authority (Adia) likely to deepen its reach.

“Investors are fairly constant [and] slightly bearish this year when it comes to Chinese equities,” Diego Lopez, managing director at Global SWF, told AsianInvestor. “Exceptions are some Middle Eastern funds, [like the] $829-billion Adia, $692-billion Kuwait Investment Authority, and new applicant $430-billion Public Investment Fund (PIF).” 

Earlier this month, Saudi Arabia’s PIF applied to become a Qualified Foreign Institutional Investor (QFII) – a status that enables direct access to Chinese A-shares, denominated in renminbi (RMB), on Chinese stock exchanges.

 

Source: Global SWF

Adia, the world’s third-largest sovereign wealth fund, has been particularly bullish on China, having invested in the country for a decade. 

As of September this year, Adia held $1.4 billion in Chinese A-shares, a far cry compared to 2015, when it only had $300 million, according to Global SWF research. 

Moreover, emerging markets equities could reach a maximum of 20% of Adia’s overall portfolio, according to its latest disclosure

Source: ADIA website
Deigo Lopez, Global SWF

CHINA SHIFT

Adia is also considering a China equities mandate with a possible minimum of $300 million in investment size, a source familiar with the matter told AsianInvestor. No public Request for Proposal (RFP) has been issued to date.

“Adia recently decided to eliminate its internally managed Japan mandate, and given the increase in activity [of Chinese assets], we assume it was to rebalance more capital into China,” said Lopez. “Of course, the $1.4 billion in current holdings is still [small] when compared to the fund’s size, and we believe there is still room to grow when it comes to China A equity mandate.”

In the first half of this year, Adia boosted its holdings in mainland Chinese stocks, according to stock filing data in China. Adia acquired large positions in A-shares and increased exposure to the consumer, financial brokerage, and pharmaceuticals industries. 

Adia declined to comment on its China investments strategy or positions, noting it does not disclose specific country exposures but confirming that it invests across numerous asset classes in China, including equities, fixed income, private equities, real estate, and others. KIA and PIF funds have also been contacted for comment.

According to a January 2017 report by The National, Sheikh Hamed bin Zayed, Adia's managing director at the time, told the Chinese media that steps to liberalise financial markets in China were promising and could lead to more investments in listed companies, fixed income, real estate, and private equity. “We have proven this through our unwavering commitment to the market, which will continue as we seek to identify investment opportunities that are aligned with China’s evolving needs,” the executive shared.

GLOBAL FOCUS

Investing into China with a standalone mandate can be challenging for foreign investors who lack an on-the-ground team. Instead of a mandate, many institutional investors have been allocating to China under an emerging markets umbrella.

In late October, American pension fund State Teachers Retirement System of Ohio ($80 billion AUM), increased its investment in Alibaba Group and cut positions in Netflix, Bank of America, and Intel in the third quarter.

The Ohio Public Employees Retirement System ($91 billion AUM) in mid-October also launched a Request For Information (RFI) for emerging markets equity. The expected mandate size is between $400 million to $750 million, according to eVestment. The RFI is looking for funds that track Morgan Stanley Capital International Emerging Market New Dividend Index, where China weights nearly 40%.

Also in October, Swedish pension fund Första AP-fonden ($423 billion AUM) announced a $600 million to $700 million emerging market mandate to enhance exposure to countries including China. 

Last October, the $75-billion Border to Coast Pensions Partnership (Border to Coast) — one of the largest public sector pension pools in the UK — appointed two China equity managers and allocated $530 million for its China exposure. In November 2020, Australian superannuation fund State Super ($44 billion) also awarded an All China Equity mandate to manager Ninety One.

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