Institutional investors, family offices turn gloomier on China
Concerns over the high levels of corporate debt, flagging growth, a weak property market, and deteriorating relationship between Beijing and Washington, is causing institutional investors and multi-family offices to pull back from the region’s largest economy, with some turning more cautious on Asia as a result.
Since last August, the size of OMERS China allocation has fallen from 2.5% of its portfolio to “less than 2%,” according to a spokesperson for the fund, who declined to say whether the decline was from selling holdings or falling values of holding, or both.
The allocation remains primarily through public markets and some fund exposure and the fund is still not considering private, direct investing in the country, they added.
AsianInvestor reported in August 2023 that major Canadian pension funds CDPQ and OTPP, who pulled out of the country’s private equity sector early last year, had no plans to return.
Both pension funds declined to say whether they had since reduced their public market exposure to China.
AITi Tiedemann Global
CATALYST NEEDED
Nancy Curtin, global CIO at AlTi Tiedemann Global, a multi-family office and discretionary wealth manager with $49 billion in assets under management, mostly in the US or Europe, said she was worried about China’s economy and therefore hesitant over investing in Asia as a whole.
“The economy continues to suffer from debt overhang, deflation and the bursting of the property bubble. While Chinese equities are attractively priced after declining by 11% last year, economic growth continues to remain fragile,” she said.
“Well-focused stimulus that supports China’s growth could be the catalyst to a change [in our sentiment]. The big driver of what happens in Asia will likely be driven by China, where we remain cautious,” she added.
KPMG
“China is very difficult for investors currently; it stands out on its own [in Asia]. Foreign capital is currently extremely wary, in private markets especially,” said Andrew Thompson, head of private equity, at KPMG Asia Pacific based in Singapore, although he noted that for the largest investors, the market remains too large to be ignored.
TECH TROUBLES
Technology stocks are a particular area of focus for investors.
“I think we will continue to see the technology sector and maybe even data collectors remain topical with sanctions,” said Andrew Sharrock, chief investment officer at Landmark Family Office in Hong Kong.
Landmark Family Office
He added that he had confidence the US government, restrained by the two houses of Congress, would behave with common sense over sanctions in the long term.
AlTi Tiedemann Global's Curtin emphasised the strong fundamentals of the sector, pointing to companies such as China’s BYD, which overtook Tesla as the world’s top electric-vehicle manufacturer in the fourth quarter of 2023.
Yet prices for many of the country’s leading technology stocks, with little or no government ownership – a fact which has made them popular among global investors in the past – have fallen sharply in recent years, with many shedding between 50% and 70% of their value since spring 2021.
The combined market capitalisation of big private companies has fallen by about 60% in the two and a half years to the end of 2023, according to research by The Peterson Institute for International Economics, a US think tank, published in early February.
Private companies – defined as those with less than 10% owned by the state – among China’s 100 largest companies, whose valuation peaked at $4.745 trillion in 2021, were worth less than $2 trillion at the end of last year, according to the report.
The MSCI China equity index has fallen more than 60% since its high point in spring 2021 and lost 11% of its value in January alone. As a result, China's share of global market capitalisation, measured in dollars, has fallen from 20% in 2015, to around 10% today.