As some asset owners become cautious of Chinese assets, Middle Eastern funds continue to increase their allocations to the country, with the Abu Dhabi Investment Authority (Adia) likely to expand its reach.
“Investors are fairly constant [and] slightly bearish this year for Chinese equities, ”said Diego Lopez, Managing Director of Global SWF, AsianInvestor. “The exceptions are certain Middle Eastern funds, [like the] Adia of $ 829 billion, the Kuwait Investment Authority of $ 692 billion and the New Public Investment Fund (PIF) of $ 430 billion.
Earlier this month, Saudi Arabia’s PIF applied to become a Qualified Foreign Institutional Investor (QFII) – a status which allows direct access to Chinese A shares, denominated in renminbi (RMB), on Chinese stock exchanges.
Adia, the world’s third-largest sovereign wealth fund, has been particularly optimistic about China, having invested in the country for a decade.
In September of this year, Adia held $ 1.4 billion of Chinese A shares, a far cry from 2015, when it only had $ 300 million, according to a Global SWF study.
In addition, emerging market equities could reach a maximum of 20% of Adia’s overall portfolio, according to its last disclosure.
Source: ADIA website
Deigo Lopez, Global SWF
CHANGE OF CHINA
Adia is also considering a mandate in Chinese equities with a possible minimum of $ 300 million in investment, a source familiar with the matter said. Asian investor. No public call for tenders has been published to date.
“Adia recently decided to abolish its Japanese mandate managed internally, and given the increase in activity [of Chinese assets], we assume it was to rebalance more capital in China, ”Lopez said. “Of course, the current $ 1.4 billion in holdings are still [small] relative to the size of the fund, and we believe there is still room to grow when it comes to the Chinese equity A mandate.
In the first half of this year, Adia increased its holdings in mainland China stocks, according to China stock ranking data. Adia acquired significant positions in A shares and increased exposure the consumer, financial brokerage and pharmaceutical sectors.
Adia declined to comment on its strategy or investment positions in China, noting that it does not disclose specific country exposures, but confirming that it invests in many asset classes in China, including stocks, fixed income securities, private stocks, real estate and others. The KIA and PIF funds were also contacted for comment.
According to a January 2017 report from The National, Sheikh Hamed bin ZayedChief Executive Officer of Adia at the time told Chinese media that China’s financial market liberalization measures were promising and could lead to more investment in listed companies, fixed income, real estate and private equity. “We have proven this through our unwavering commitment to the market, which will continue as we seek to identify investment opportunities aligned with China’s changing needs,” said the leader.
Investing in China with a stand-alone mandate can be difficult for foreign investors who do not have a team on the ground. Instead of a mandate, many institutional investors have allocated to China under the umbrella of emerging markets.
At the end of October, the American State Teachers Retirement System of Ohio pension fund ($ 80 billion in assets under management) increased its investment in the Alibaba group and reduced its positions in Netflix, Bank of America and Intel in the third quarter.
The Ohio Public Employees Retirement System ($ 91 billion in assets under management) also launched a Request for Information (RFI) for emerging market equities in mid-October. The expected mandate size is between $ 400 million and $ 750 million, according to eVestment. The RFI is looking for the following funds Morgan Stanley Capital International New Dividend Emerging Markets Index, where China weighs nearly 40%.
Also in October, the Swedish pension fund Första AP-fonden ($ 423 billion in assets under management) announced a mandate of $ 600 to 700 million in emerging markets to strengthen its exposure to countries like China.
Last October, the $ 75 billion Border to Coast Pensions Partnership – one of the UK’s largest public sector pension funds – appointed two Chinese equity managers and allocated $ 530 million dollars to its exposure to China. In November 2020, the Australian State Super pension fund ($ 44 billion) also awarded an All China Equity mandate to manager Ninety One.
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