The China market — the largest economy in the making or a regulatory minefield? Learn from China market experts as they share their market views.
About the event
China benchmark indices have experienced a sharp decline recently, and even the likes of Tencent are not spared from the market volatility. While China’s securities regulator has soothed brokerages and market participants with the promise of a steadier reform roll-out, unexpected news of crackdowns across different sectors have not allayed investors’ concerns.
How should investors position their portfolios amid this market volatility, and does the long-term growth story of China justify the regulatory risks involved when investing in the Chinese market?
Excerpts from the webinar
Update on China Market Regulations
Wei Mei: We have been seeing different types of market regulations from the Chinese authorities coming into play. The more prominent ones would be the challenges that many Chinese companies face, such as US listing troubles by Ant Financial, Didi struggles in the delivery industry, Meituan's challenges as a food delivery company on the welfare of their food delivery workers, and afterschool tutoring clampdown. Regulatory pressure is across industries, technology, finance and education.
These regulatory crackdowns can be attributed to the Chinese government's focus on common prosperity, need to prevent disorderly capital expansion, and also to build a great modern socialist country. We believe that the intention is well meaning, and that the Chinese authorities have taken steps to ensure that there is sufficient liquidity in the market through lowering of reserve requirements and an injection of 50 billion yuan into the market.
Speakers: There are few reasons to the recent crackdowns – first I believe President Xi wants to bolster his socialist credentials before the next Party Congress. The recent policies changes will go a long way to boost his credentials. Anecdotal accounts on the after school tutoring services showed that they are very popular. These services however contributed to parental stress and gave an advantage to richer families. While the regulations were not popular from investors’ perspective, they were supported by netizens. The clampdown on online gaming in contrast was far less popular.
The second key catalyst is that regulators are playing catch up to the fast pace of innovation from the Chinese companies. It is difficult for government anywhere, especially in the tech sector, to regulate innovation. The Chinese government is on a steep learning curve on how best to respond to innovation in the private sector.
There are also greater checks and scrutiny of successful Chinese entrepreneurs. The thriving private sectors has generally been a positive movement, but also have created growing income disparity. While they will be greater checks and balances moving forward. This is certainly not the end of capitalism in China.
What are the risks for investors given the regulatory headwind?
Speakers: Regulation is one of the key risks, and these are across sectors. Previously, around a decade ago, there were concerns on pollution and waste management. The China real estate industry is also one of the most closely managed industry from a policy standpoint, to prevent it from overheating. There are also policies that were put in place to ensure that certain property developers deleverage, as they were causing risk to the financial system.
Such regulations on labour rights, monopolistic business practices, have been something that regulators in developed markets have been on top of for many years. The key difference for China is the pace at which regulation is implemented. The pace of it is what catches investors off guard. While some sectors, such as the education sectors, are fundamentally impaired, other remains strong and are at a more attractive valuation now. This means that many of the risks is already priced in. The Chinese market is 50% cheaper than the S&P 500 from a price to book ratio, and 35% cheaper on a price to earning basis.
China is balancing between growth and sustainability, and longer term it should help the market bring down the potential systematic risk. This may come with short term volatility.
What are the potential growth sectors in China?
Speakers: There are 5 key themes we are looking at that represents good growth opportunities in China.
Aspiration – which ties in with the growth in consumption in areas like travel, F&B and consumer electronics.
Digital – increasing connectivity with widespread technology means on cybersecurity cloud, software-as-service.
Green – Chinese policy makers are committed to a greener and lower carbon world. Investing on renewable energy, batteries, electric vehicles, and infrastructure have a bright future.
Health – Fast growing disposable income drives demand for healthcare products.
Wealth- Growing wealth leads to growth for consumer finance, investment services and insurance
What is the difference between the China A-shares and China offshore markets?
China A-Shares are the shares of mainland China-based companies that are traded on the two Chinese stock exchanges, the Shanghai Exchange and Shenzhen Exchange. What is unique about the China A-shares on share market is that the investable universe is very large, more than 4,000 companies listed, which is comparable to the US. The exchange is also dominated by mid-cap companies, which is also rare. It is also very driven by mainland retail investor driven, leading to greater market volatility.
The China offshore markets are generally segmented into two other different categories, Greater China, which includes companies listed in countries with “Chinese” cultural ties, such as, Hong Kong, Taiwan, Macau. All China, which includes companies listed globally, which also includes US listed companies, even Chinese companies listed to the Singapore Catalist market.
Read more: The top four questions we get on investing in China
About the speakers
Wei Mei Tan, Chief Advisory Officer, Endowus
Wei Mei has over 20 years of financial markets experience. She has been in key leadership positions across private banking, investment banking and asset management. Wei Mei was most recently a Managing Director at Deutsche Bank and was the Global Co-Head of Advisory & Investment Solutions. She was previously at Credit Suisse, UBS, JP Morgan and Temasek. In the last decade, she has successfully launched digital advisory platforms and discretionary mandate solutions at many of these firms.
Kyungju Hong, Investment Analyst, Endowus
Kyungju is an Analyst with the Investment Office at Endowus, working to curate best-in-class investment products and offer them to clients in the easiest, cheapest way possible. Kyungju graduated from SMU LKC Business School majoring in Finance, and comes with internship experiences in corporate finance, mezzanine finance, and VC. In her spare time, the Brunei-raised Korean enjoys practising ballet.
Tessa Wong, Product Specialist, Allianz Global Investors
Tessa Wong is a Hong Kong-based product specialist with Allianz Global Investors. She joined the firm in 2017 and specializes in Greater China equity and Asian income strategies. During the past three years she successfully led the development of Asia and China Income franchise, and contributed significantly to the growth of China A / All China strategies. Her client coverage includes private banking, retail banking and insurance clients. Before joining Allianz Global Investors, Tessa worked previously at Citi and JP Morgan private bank, where she worked as product manager overseeing the entire fund platform ranging from fixed income, multi asset to equity strategies.
Tessa has a B.S.Sc in Economics and minor in Finance from the Chinese University of Hong Kong and is also a CFA Charterholder.
Ben Sheehan, Senior Investment Specialist, Aberdeen Standard Investments
Ben Sheehan is Senior Investment Specialist, Equities at Aberdeen Standard Investments, based in Hong Kong. He is responsible for working closely with the Asia Pacific equities and distribution teams to ensure investment knowledge transfer internally and externally, and help drive the firm’s commercial strategy.
Prior to joining Aberdeen Standard Investments in 2019, Ben worked at HSBC Global Asset Management in Hong Kong for 12 years in a various roles including senior specialist and research roles, most recently as Senior Product Specialist for Asian Equities. He also worked for Standard & Poor's and Aviva in Research roles. He has 19 years of industry experience and holds a BA (Indonesian) and BCom (Finance).
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