Commentary - 28 May 2019

Hawksford Hosts - Accessing Asia in 2019: the Latest Trends

At an exclusive event overlooking London from the upper floors of London’s iconic Gherkin, Hawksford, the international corporate, trust and market entry services provider provided an insightful outlook on investment opportunities today in Asia.

The event, which forms part of a global event series ‘Hawksford Hosts’, entitled Accessing Asia in 2019: the Latest Trends, provided opportunity to hear from guest speaker Sue Anne Tay, Director for China and RMB internationalisation and Group Strategy at HSBC. 

Tackling China

Sue Anne’s presentation covered the liberalisations of capital markets in China, economic development trends including a booming domestic consumer market, and government efforts to create robust city clusters, including the Greater Bay Area initiative.

Sue Anne described how dramatic tariffs announced recently by the Trump administration are being countered by steps the Chinese government has taken to further reform and open up its economy. This includes tax cuts, driving more foreign and domestic investment, as announced in March’s National People’s Congress (NPC). Increased support and attention is also being directed at the private sector, which employs 60% of China’s workers and accounts for 60% of its GDP and holds a far smaller portion of the country’s corporate debt.

The huge domestic consumer market in China, with a middle class population of 400 million, has been benefiting from improved infrastructure and widespread adoption of advanced and efficient mobile/payment technologies. This presents an incredible opportunity for both domestic and foreign investment. 

China is also progressing in its journey to make its currency, the Renminbi, more international. There have been consistent efforts to increase access for foreign investors with platforms  such as the Hong Kong-Shanghai stock connect programme (followed by a same program between Hong Kong and Shenzhen), the China-Hong Kong Bond Connect, are opening new opportunities for investment in China’s domestic equity and bond markets which traditionally have low rates of foreign investor participation. With on the inclusion of Chinese equities and bonds in international indexes such as A-shares included in the MSCI Emerging Markets Index, and Chinese government and policy bank bonds in the Bloomberg Barclays Global Aggregate Index,  she expects to see significant investment activities and inflows into China’s capital markets. 

Finally, the Chinese economy is also being powered by the national government’s emphasis on strengthening its key cluster cities. This is particularly evident with the Greater Bay Area project, which is a national development plan involving Shenzhen, Guangzhou and nine other cities in Guangdong province in mainland China, together with Hong Kong and, Macao to be a globally competitive economic cluster. Each city would play a specific, complementary role but overall leverage the region’s expertise in innovation, high-end manufacturing and financial services

Following Sue Anne’s presentation, attendees were given the opportunity to ask questions.

Operating at the centre of cross border investment into China and Asia

Hawksford, which operates at the centre of cross border investment into China and Asia, opened the discussion by asking whether an increase in Renminbi-denominated funds was on the way, and what efforts could be made to make foreign investors feel more secure operating in the currency. 

Sue Anne noted that offshore liquidity is very important in promoting breadth and scope of Renminbi denominated products. Hong Kong remains the largest offshore RMB centre which explains the breadth of Renminbi products from funds to insurance products. In comparison, while London is the largest offshore RMB centre outside of Greater China, the pool of liquidity is comparatively smaller than Hong Kong. There is a smaller demand and trading activity in such products.
She noted that the ongoing tariff tensions may lead to more short-term Renminbi volatility, but investors are better prepared today then they had been  in 2015, when the currency depreciated when it underwent market reform. 

The strength of China’s currency has an impact on mainland investors that may want to divest away from onshore holdings and in other currencies but capital restrictions on outflows remain in place, Sue Anne, continued. Nevertheless, the Chinese government has taken huge strides in opening up its capital markets for offshore investor access, the overall journey of Renminbi internationalisation will still take some time.  

The second question was related to debt in China, and how much of a concern this should be for China, and Asia as a whole.

at the macro level, Sue Anne acknowledged that China’s debt-to-GDP ratio, at over 250% (as estimated by the Bank of International Settlements)   has drawn much attention. But one should keep in mind China still has significantly high savings rates as compared to Western countries while households and private sector debt remain moderate. 

The elephant in the room

The final topic for the breakfast touched on the elephant in the room: US-China tariff war, and whether this is part of a new economic cold-war that would be fought on multiple fronts for years to come. 

While admitting that the tariffs were a signifier of America’s attempts to gain other demands of China including open market access across industries, Sue Anne was optimistic about the prospects for global trade. She highlighted that China  has been trying to shift from an export-oriented economic model to a higher-value manufacturer but also to cater to its large and demanding local consumer base, particularly technology-related product and services. This presents many opportunities for foreign players to tap into the Chinese market too. 

This, alongside new routes to market through international trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) reaching across to Canada and Mexico, and the Regional Comprehensive Economic Partnership (RCEP) involving China with its closer regional neighbors, means that China can focus on driving flows with other markets that will lessen the impact of US tariffs.

The presentation ended there, with many of the guests taking the chance to discuss further their own experiences and thoughts on Chinese market entry with Sue Anne and representatives from Hawksford. Hawksford has over 10 years of on-the-ground experience in Asia, with over 200 highly qualified staff working in multiple offices in Hong Kong, Singapore and China.

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