The launch of the Shanghai-Hong Kong Stock Connect on 17 November will be a “watershed moment” and an excellent opportunity for European pension funds to invest in China, according to Roland van den Brink, former CIO at the €38bn Dutch metal scheme PME.
“For institutional investors prepared to look thoroughly into the options and build personal relations, there are interesting opportunities,” he said.
Since PME invested in local A-shares more than 10 years ago, Van den Brink has been monitoring developments closely, he said.
“The climate for foreign investment in China – 8% of the world market – is maturing,” he added.
As of 17 November, investors will be able to use Shanghai-Hong Kong Stock Connect to invest in almost 600 renminbi-denominated local shares of Shanghai-listed companies – directly and without the need for a license.
Until now, investment has been possible only indirectly, and most often through expensive, Hong Kong dollar-denominated H-shares, Van den Brink said.
He highlighted the “huge potential” of the Chinese market, “with 100m rich citizens, as well as 250m internal migrants who have been promised education and care in their new residence”.
He added: “These migrants are the up-and-coming people with money. But, for the time being, they need the complete selection of Marks & Spencer. Rabobank has estimated that the disposable income of the average Chinese workers will have doubled by 2017 compared with 2009.”
In Van den Brink’s opinion, the investment sector is now properly regulated, and the new government has the “political will” to reward shareholders.
He said interest rates in China were “attractive”, and that the renminbi was relatively stable and on its way to becoming the world’s third trade currency, which can already be exchanged in London and Frankfurt.
However, the Van den Brink – also a former professor of financial markets at Nyenrode Business University – warned against investing in “almost broke” local banks and “weak” state-owned enterprises.
PME’s former CIO said China would refrain from introducing a capital gains tax for foreign investors, which will “boost” several investment funds, “as most of them had anticipated a 10% tax rate”.
Van den Brink said he expected Chinese equities to become part of the MSCI within two years, and predicted that Chinese bonds and derivatives would, in turn, become available for foreign investors.