Global Investors’ ‘Long China’ Position Under Fewer Barriers to Entry
Top 50 international institutional funds investing in Chinese tech companies.
The capital market is an integral part of the modern economy. During the past two decades of the 21st century, China's economy has been vastly favored by a broad gamut of financing activities. Among them, the removal of quota restrictions on QFII and RQFII made the door opens wider. Consequently, the opportunities are increasing for foreign institutional investors.
Buy-side: who's investing in China's tech market?
EqualOcean filtered the top 30 China Concepts Stock with the highest turnover on February 19, and found more than 120 listed organizations, according to their latest disclosed top 10 institutional investors.
The over 120 institutions, holding in excess USD 222.4 billion market cap, make up almost 16% of the value of the whole market cap by America's top 30 companies. Among them, BlackRock holds the biggest stake of China Concepts Stock, valued at USD 30.9 billion. It's also worth noting that, the top institutional investors are mainly passive funds, which follow different stock or portfolio indexes in China.
However, since our analysis includes only the top 10 shareholders for each public firm, it is possible to miss some other big funds or investors. For instance, the threshold of Alibaba's top ten shareholders is USD 5 billion with Hillhouse Capital holding a significant share, USD 900 million.
Besides, about the PE/VC investment, our previous article chronicled 30 years of international capital's presence in China. We generated a list of the top 50 global institutions that have shown the best performance in the Chinese private and secondary markets.
Big China Funds
China funds are mutual funds that focus on stocks and bonds located/issued in the emerging-market nation of China and its various special administrative regions, such as Macau and Hong Kong. The funds cover a wide range of Chinese stocks and bonds across all sectors of the market as well as market caps, share classes, issuers and maturities. They can be indexed or actively managed, as MutualFunds described it.
We found that the market is quite concentrated, the total net assets of the top 10 biggest China Funds in the US reach USD 4.38 billion. Fidelity is definitely the winner in terms of both the money pool and the 1-year return. The highest portfolio return rate is owned by Matthews Asia Small Companies Fund.
Sell-side: who's underwriting China?
After a disappointing performance in the A-share market and scandals in 2013, underwriters in China have shifted into high gear with the resumption of IPO activity since 2014, according to China daily.
Data from Choice terminal suggests that securities underwriters in China's IPOs on the Star Market, Hong Kong Stock exchange and in the US actively, closed more than 2,000 deals.
Last year August, the National Association of Financial Market Institutional Investors, regulator of the Chinese interbank bond market, started accepting applications from foreign banks looking for a type-A licenses which is a full-fledged bond license that allows holders to underwrite all kinds of bonds in the interbank market, ranging from negotiable certificates of deposit to asset-backed notes.
This means foreign banks can act as lead underwriters for all deals in China's domestic interbank bond market, signaling a further opening up of the Mainland's financial market.
Local governments will be guided to revise rules to allow foreign-invested banks underwriting bonds issued by them as part of the country's financial market opening-up, the Ministry of Finance said on January 6.
Accelerating to open up?
Other than the type-A licenses for foreign banks, on September 10, 2019, the State Administration of Foreign Exchange (SAFE) announced that China will cancel the investment quota restrictions for 'Qualified Foreign Institutional Investors' (QFII) and 'Renminbi Qualified Foreign Institutional Investors' (RQFII) which is considered as another financial tool for opening up. As the SAFE has reported, over 400 institutional investors from more than 30 countries have invested in China's secondary market since the QFII (2002) and RQFII (2011) schemes began.
Other measures accelerating the opening up have also been announced by the office of the Financial Stability and Development Committee (FSDC) since last July. They include allowing foreign-asset managers to invest jointly with Chinese banking or insurance subsidiaries to establish wealth-management companies that can be share-controlled by the foreign entity etc. Not only are new measures being announced, more importantly, timeframes are also being brought forward wherever possible.
Looking forward, China's efforts to open its financial sector is set to continue at an expedited pace. Even though the GDP growth rate is not as exhilarating as years ago, the growth opportunity in China especially the tech-related sectors has been largely unscathed. The bigger it becomes, the more reason there is to 'Long China.'