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China is off the map for Latin American investors

Capital controls, regulatory changes and slowing economic growth are concerning to Latin American investors, according to Mariano Sardáns, CEO of wealth management firm FDI - Gerenciadora de Patrimonios in Buenos Aires.

Sardáns’ firm, an independent wealth manager, has family office and institutional clients from Latin America, mostly Argentina and Uruguay.

He said generally clients are becoming more open to new investment opportunities than in the past, but there has been little interest in Asia and none in China.

Investors have some interest in Japan, South Korea and Hong Kong but he said China remained an enigma for most of the region’s wealthy.

“There are some concerns about investing in Asia, certainly in China,” said Sardáns said. “This is mostly because investors lack information or they feel that the rules are not entirely clear.”

He said there had long been concerns about China’s currency controls and other limitations to foreign investment as well as complex rules.

Liquidity concerns

The main issue for Latin American investors is liquidity when investing in China-focused financial products. The perception is that the process of getting capital out of China is not straightforward.

Concerns have been exacerbated by the anti-China rhetoric of US president Donald Trump and the potential impact of US trade policies on the mainland economy, he added.

Argentina has had capital controls, which were only lifted in late 2015 after reformist Mauricio Macri was elected president and ended decades of populist rule. Argentines therefore remain concerned about investing their wealth in a country with a history of capital controls and sudden changes in regulations.

China has had regulatory missteps that worried global investors. For example, the regulator introduced and soon after withdrew a market “circuit breaker” after the domestic stock market crash in late 2015.

“We manage a large amount of wealth but nobody has ever approached us with a clear desire to invest in China,” said Sardáns.

“There are clearly concerns because what they are investing in China is not at all proportional to what they invest in North America.”

About half of the cumulative assets of the wealthy in Latin America are offshore, with about 21% in North America, 8.5% in Western Europe and 7.6% in Japan, according to the Capgemini World Wealth Report 2016.

Asia excluding Japan attracted only 4.7%.

According to the report, the number of Latin America’s wealthy declined by 2.2% year-on-year in 2016, to 520,000, while their wealth declined by 3.7%, to $7.4trn. 

The declines were mostly driven by a sharp falls in commodity prices that had been the backbone of growth in the region in previous years as well as the political turmoil in Brazil. 

Part of the Mark Allen Group.