Responding to a recent survey, half of asset owners said they have increased their allocation to Chinese investments over the last 12 months, while 64% plan to invest more in the next 12 months.
“Despite the ongoing geopolitical tension and recent headlines on actions by Chinese regulators, the macro outlook remains strong as the country fine tunes its industry policies to balance growth with sustainability,” said Chin Ping Chia, head of business strategy and development of China A investments at Invesco.
“We see that global investors recognise the need and benefit of a long-term China allocation as the underlying economy continues to evolve and transform.”
The US investment firm conducted a survey of 200 asset owners globally between June and July this year to understand their exposure to Chinese investments.
A majority (60%) of respondents are optimistic that China economic conditions will outperform the rest of the world during the next year.
Asset class preferences
China onshore equities are the most favoured asset class, with 52% of surveyed asset managers selecting it, followed by onshore fixed income (51%) and offshore equities (50%).
Investors are also looking to increase exposure to illiquid asset classes, with 40% of the respondents looking to raise their allocation to Chinese real estate over the next 12 months, followed by 39% in direct ownership of companies and 38% in other alternatives.
Technology innovation and financial services remain the top two favourite themes, with 49% and 44% of respondents, respectively, allocating to these segments.
“We foresee that the recent increase in regulatory scrutiny will promote healthy competition and support more sustainable competition within the internet sector,” Chia said .
“As China’s clout grows further in the global economy, long-term investors are likely to reap the full benefits with an appropriate exposure in China assets linked to new economy themes.”
Within the technology sector, asset owners are finding opportunities in artificial intelligence or related digital automation, 5G and online services.
ESG investing
The survey also found that responsible investing is increasingly important, with 62% of the surveyed asset owners saying that they always or often integrate ESG investing as part of their process when taking China exposure.
Yet data disclosure remains a key challenge for investors. The survey found that respondents’ top three concerns are that too few equity or bond issuers in China meet their standard for scope or quality of ESG disclosures (28%), ESG-related data from equity or bond issuers in China is not readily available (25%), and ESG-related data from equity or bond issuers in China is too difficult to verify (12%).
Chia believes transparency will improve as the country is determined to play a meaningful role in tackling climate change going forward.
“While it is still in its early days, China’s ESG disclosures and reporting standards have been improving at a fast pace over the last five years, driven by an increased awareness of ESG issues by both companies and investors,” he said.
