Recently, a number of international investment institutions, including Morgan Stanley and Goldman Sachs, have been "singing more" on the China stock market, and many institutions have even taken out "real money and silver" to buy more China assets.
Experts said that with the implementation of a series of steady growth measures in China and the accelerated optimization of epidemic prevention and control measures, the expectation of China’s economic stabilization and rebound has become clearer, attracting international institutions to re-examine the allocation value of China’s assets. In the future, under the background of China’s deepening the high-level institutional opening-up of the capital market, the efforts of international institutions to "buy in buy buy" are worth looking forward to.
Institutional upward adjustment expectations
Recently, a number of overseas investment institutions have increased their allocation to the China stock market.
On December 4th, Morgan Stanley upgraded the China stock market from "standard" to "over-allocation", and it is predicted that the MSCI China Index will rise by 14% by the end of 2023. Wang Ying, chief equity strategist of Morgan Stanley China, said that the evaluation framework shows that the prevention and control measures of China epidemic are continuously optimized, the real estate market is stabilized, and the regulatory adjustment is in the final stage, so the stock risk premium may be improved, so the target price for the entire China market is raised, and there is a greater chance of revaluation by 2023.
Coincidentally, on November 30, Goldman Sachs also said that it would also give a proposal of "high allocation" for A-share investment in 2023, and it is expected that the valuation of A-shares will rebound significantly. Liu Jinjin, chief China equity strategist of Goldman Sachs, said that under the expectation that the macro-control is intensified and the GDP growth rate is expected to pick up, we are optimistic about the performance of China stocks listed at home and abroad.
Bank of America’s strategy team believes that China’s domestic stocks are bound to rise due to the excess savings of China residents and the continuous optimization of epidemic prevention policies. Rui Dalio, the founder of Bridgewater, believes that some valuable assets can be found in the China market at present. China is the second largest economy in the world, and investors can improve their diversification by investing in China.
The support of international institutions is not groundless. Recently, the overseas listed China ETF, China Stock Exchange and offshore RMB exchange rate all ushered in a wave of solid rise, which enhanced the confidence of foreign institutions to invest in China. For example, since November, the net value of iShares MSCI China ETF with a scale of over $7 billion has increased by over 30%; NASDAQ Jinlong China Index rose by more than 40% in November, the largest monthly increase since records began in 2003. The RMB exchange rate has also recently gone out of a strong upward trend. On the morning of December 5, the offshore RMB exchange rate against the US dollar rose to 6.9813, the highest since mid-September.
"At present, some major economies continue to tighten monetary policy, the risk of economic recession has intensified, and market return expectations have weakened. In contrast, China has a stable economic development and clear investment logic. " Li Zhan, chief economist of China Merchants Fund Research Department, analyzed that China’s economy is changing from high-speed growth to high-quality development, and there are a lot of investment opportunities in the process of industrial upgrading and consumption upgrading in various industries. At the same time, China recovered quickly from the impact of the epidemic, and its economy rebounded significantly in the third quarter, and its position in the global industrial chain was rising day by day. In addition, China’s financial opening to the outside world has been continuously promoted, and the channels for foreign investors to participate in the domestic financial market have been continuously optimized, attracting the attention of more and more international investors.
The attractiveness of A shares has increased.
In addition to high-profile "singing more" China assets, foreign investors also took out "real money and silver" and continued to substantially increase their positions in A shares. As of December 6, the net purchase of northbound funds in 30 days exceeded 75 billion yuan, and the net purchase in the past 10 days reached 42.8 billion yuan.
Looking forward to 2023, the market expects that the pace of foreign investment "buying in buy buy" will continue to accelerate. "In 2022, nearly 70% of the financing amount in the A-share market comes from science and technology innovation board and the Growth Enterprise Market, which fully reflects the support of the capital market for technological innovation enterprises and emerging industries." Sun Jin, a partner of PricewaterhouseCoopers China Comprehensive Business Services Department, said that in 2023, with the steady progress of the comprehensive registration system reform and the introduction of more measures to support scientific and technological innovation, the international attractiveness of the A-share market will be further enhanced.
As for the investment industry, the strategy team of Goldman Sachs believes that with the implementation of policies and measures to stabilize growth and the continuous optimization of epidemic prevention and control measures, the unemployment rate in China will drop, labor income will improve, consumer confidence will be restored, and consumer services, medical equipment and service sectors will rebound strongly, especially in tourism, catering, entertainment and aviation industries.
"Next, the geopolitical situation will enter a relatively calm stage, and the equity cost and equity risk premium will gradually decline, which will help investors reinvest in the China stock market. The consumer sector is the beneficiary of economic opening up. We further increase our exposure to this sector and continue to suggest increasing the allocation of offshore China stocks. " Wang Ying said.
In order to better attract foreign investment into the China market, Tian Lihui, president of the Institute of Financial Development of Nankai University, believes that it is necessary to persist in promoting the high-level institutional opening-up of the capital market and make overall plans for development and security. It is necessary to continue to expand the interconnection quota, continuously increase the variety of international products, gradually liberalize the restrictions on foreign-funded shares of financial institutions, and continue to promote the internationalization of the RMB. At the same time, the capital market should be opened to the outside world with gates, there should be room for trading rules, and market supervision should be real-time and prudent to prevent foreign hot money speculation and prevent the spread of foreign financial risks.
Fang Xinghai, vice chairman of China Securities Regulatory Commission, also said recently that high-quality overseas capital market institutions are welcome to invest and exhibit in China. In the future, we will further improve the institutional framework for opening up the capital market, accelerate the implementation of various opening-up measures, and attract and gather more outstanding international institutions and talents to participate in China’s capital market. We will continue to improve relevant institutional arrangements, further facilitate cross-border investment by domestic and foreign investors, and better support cross-border financing development of enterprises.
Competing for exhibition industry in China
Since the beginning of this year, the policy dividends to further improve the convenience of foreign investment in China’s assets have been released intensively, giving foreign institutions a "reassurance" to enter the China market.
On April 26th, the CSRC issued the Opinions on Accelerating the High-quality Development of Public Offering of Fund Industry, proposing to support high-quality overseas financial institutions with long-term investment will to set up fund management companies or expand the shareholding ratio. On November 18th, the People’s Bank of China and the foreign exchange bureau jointly issued the Regulations on Fund Management of Foreign Institutional Investors’ Investment in China Bond Market, which improved and clarified the requirements for fund management of foreign institutional investors’ investment in China Bond Market.
The convenience of foreign-funded institutions’ exhibition industry in China has been continuously improved, and the business scope and regulatory requirements have achieved national treatment. At present, more than 10 foreign-controlled or wholly-owned securities fund futures companies, such as JPMorgan Chase, Goldman Sachs, Nomura and UBS, have been successively approved, and foreign banks such as Standard Chartered Bank have obtained fund custody qualifications in subsidiaries in China. Foreign private equity funds such as Qiaoshui and BlackRock have successively set up 38 wholly-owned subsidiaries.
On November 25th, Lubomai Fund announced that it had obtained the Public Offering of Fund business license issued by China Securities Regulatory Commission, becoming the second wholly foreign-owned fund management company newly established in China to conduct Public Offering of Fund business. Lubomai Fund said that the continuous opening of the financial market and the increasingly perfect business environment ruled by law have further enhanced Lubomai’s confidence and hope to further integrate into the development of China’s capital market in the future.
A number of foreign-funded institutions have started to exhibit in China. At the end of October, ICBC Wealth Management of Goldman Sachs, which was approved to open in June this year, launched the first wealth management product "Shengxin Junzhi Private Bank Enjoy Quantitative Equity Wealth Management Product Phase 1", with a maximum fundraising scale of 5 billion copies. Goldman Sachs ICBC Wealth Management previously said that after the deep correction in the previous period, the value of A shares is becoming prominent, and there is a large room for long-term holding.
As the first wholly foreign-owned public offering, BlackRock Fund has issued three equity funds and one "fixed income+"fund since it was approved in June 2021, and its products are diversified. Lu Wenjie, investment director of BlackRock Fund, said that A-shares are a market with great breadth and depth, wide investment scope, many related target companies and good liquidity. With the continuous strengthening of China’s opening to the outside world, it is believed that the integration of the global market and the China market will be a long-term trend.
"More outstanding international institutions entering the A-share market are investing in China’s economic growth prospects and the profitability of China enterprises ‘ A vote of confidence ’ Being able to form a healthy competitive interaction with domestic institutions is conducive to expanding the breadth and depth of China’s capital market, and is also conducive to the continuous improvement of service capabilities of related industries and helping China’s economic development. " Tian Lihui said.