As ESG is becoming the new pillar of asset allocation, major institutional investors in the region share insights on how to incorporate ESG in investments in a webinar organised by Natixis Investment Managers in partnership with AsianInvestor.
Market observers have started speculating that Sydney is poised to be approved for RQFII status after Bank of China’s RMB clearing facility went live in Australia yesterday.
The clearing service, launched in partnership with the Australian Stock Exchange (ASX) will allow Australia-based customers to carry out high-value, RMB-denominated electronic cash transfers. Clearing will be executed via the ASX’s Austraclear system from participant accounts held with BOC.
The news prompted Shanghai-based consultancy Z-Ben Advisors to speculate that this was the final piece of key infrastructure to fast-track renminbi-denominated qualified foreign institutional investor (RQFII) approval for Sydney.
The consultancy suggested that a commercial clearing facility had become a main precursor to a nation receiving an RQFII grant during a subsequent official visit, noting that Chinese president Xi Jinping is set to attend the G20 summit of world leaders in Queensland in November.
When asked by AsianInvestor, Andrew Bragg, director of policy and international markets at Australia's Financial Services Council, added: “RMB settlement via the ASX must enhance Sydney’s prospects of becoming the next RMB trading hub.”
In its advisory statement, Z-Ben noted that choosing Sydney as an RMB-hub candidate would be something of a departure for Beijing, in that the city is neither Ucits-compliant nor an emerging market member of the Brics acronym.
“This points to a pragmatic outlook from Chinese regulators in extending the RQFII scheme to viable and strategic hubs,” said Z-Ben in a note. “Think of Sydney as complimentary to existing RQFII hubs: Singapore is well positioned to service Asean, while the European hubs (London, Paris) exploit both mature surrounding markets and potential frontiers.”
As Z-Ben noted, Australia is already heavily integrated with China via resource-based trade and a strong financial services sector. The Australian stock market, by contrast, has a high exposure to domestic securities, while investors’ diversification needs are growing.
“While factor investors may argue that Australia’s markets are intrinsically over-exposed to China through trade ties, most investors have little-to-no direct exposure to China’s stocks and bonds in their portfolios,” Z-Ben added.
It pointed out that domestic over-exposure in Australia, which is second only to the US in terms of home bias, is significant when considering the nation’s self-funded superannuation retirement scheme, which is expected to reach $2.5 trillion in AUM by 2020.
Z-Ben noted that as a captive market Australia represented a viable starting point for rapid RQFII fund launches, with Sydney potentially able to develop a speed advantage over European hubs as it does not have to rely on a Ucits-compliant fund passport for launch.
"We believe Sydney RQII participants may split their focus between corporate treasury services and broad market access funds as initial areas for product development," said Z-Ben. "These well-developed investor segments may represent areas of near-term demand with strong future growth prospects."
It points out, too, that Australia's first RQFII fund sellers would not have to compete for international demand, as Singapore now does; rather, they would compete almost exclusively for domestic capital, as will Seoul."
It adds that the big four Chinese banks all have a presence in China, with BOC and ICBC leading the pack, while Australian banks ANZ and Westpac are at the forefront of efforts to penetrate the mainland market [both were awarded RMB-AUD market-maker status in April last year].
Investment links between the two markets are growing, with BOC's Sydney branch having issued Australia's first RMB-denominated bond this April.
"The key question in our minds is whether an Australian bank or an Australian fund manager will debut the first RQFII bond," Z-Ben asked. For the record, it placed its bets on a bank, in the belief that Australia's largest short-term accessible pool of capital lies in corporate treasuries.
The NGO's election of a Japanese insurer board member promises to improve ESG stewardship in fixed income, plus bridge the gap between investors and policymakers.
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