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Survey: Better expertise top factor driving dedicated China exposure

As institutional investors become more savvy about China they may very well go about creating dedicated investment exposure to the country, a survey suggests.

“Improvements to my organisation’s China expertise” was the top driver among survey respondents for having dedicated investment exposure, cited by 41%, although it was closely followed by “growth/profit/expansion potential of China’s listed companies”. Just under a third (31%) of those with dedicated exposure said an increase in the China weighting in global indices was a driver of this.

For those organisations without a dedicated allocation to China, more than 50% of respondents cited increased legal protections for foreign investors as a catalyst that might make them consider a dedicated exposure.

Commissioned by Invesco and carried out by the Economist Intelligence Unit, the survey collected responses from executives at more than 400 asset owners and professional investors, including asset managers, insurance companies, pension funds and commercial banks.

Respondent seniority ranged from vice president to C-suite management, with respondents generally describing their organisation’s China exposure as above average when compared to industry peers.

Nine in 10 respondents claimed some level of dedicated exposure to China, meaning the investments were “deliberately China-specific” and not part of a broader regional or other grouping such as emerging markets.

The survey indicated that over 80% of the respondents plan to increase either significantly or moderately their organisation’s allocation to Chinese investments over the next 12 months, with only 4% planning to reduce exposure to China.

China investment allocations at half of the respondents had increased “significantly” over the past 12 months, according to the survey.

Respondents indicated technology, financial services and “new economy” sectors as being the most attractive. The report explains that the “new economy” sector refers to industries with a strong digital component that develop products and businesses “via new models, operations or technologies”.

Results were mixed when it came to the question what impact tensions between US and China on trade would have on investment decisions: 43% of respondents said the trade war will have a negative impact on their investment decisions, 42% said it will have a positive impact.

North American respondents were the most optimistic, and investors in the APAC region the most negative.

Andrew Lo, senior managing director and head of Asia Pacific at Invesco, said: “The results of this comprehensive survey support much of the broader sentiment we are seeing from our global clients.

“Many have begun to recognize China as a key investment destination and a pillar of global portfolio allocation. Chinese authorities have shown their commitment to support investor interest in the country’s capital markets, and we have already seen constructive steps such as the lifting of investment quotas in the QFII programme earlier this year.”

The survey was conducted in August and September; its report can be found here.

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