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Citi Transaction Services | Citi OpenInvestor
With this in mind, it should be
apparent that small changes in the
access points, or new methods of
buying into China-related holdings, will
have a major impact on international
portfolio fows, even if only major
institutional investors are considered.
To cite an obvious instance, most
global pension funds try to diversify
their holdings in such a way that
underlying macroeconomic conditions
are represented. For the most part
they are successful, but as emerging
markets have developed as an asset
class, many traditionally successful
managers have had to scramble to
adjust their portfolio allocations
proportionately. Add to that a
global fnancial crisis that has led to
developed markets comparatively less
attractive, at least based purely upon
returns available, and the shift to a
wider variety of targets appears all
but inevitable.
Fundamentally, we expect that
in
the coming decade Greater China
will no longer be viewed simply as
an element of emerging market
exposure, but rather as a distinct
asset class, with Chinese A-share
investments making up a signifcant
part of this allocation.
The rest,
of course, will come from regional
exposure, primarily Hong Kong and
Chinese frms cross-listed on other
markets. If this sounds like a fantasy
at present, one need only look to the
Expanding Internationally
At present, Mainland China represents approximately 9% of global GDP, with similar fgures for
total market capitalization. Yet when examining global portfolio allocations, the total amount
of offshore money invested in China is nowhere near this amount. Even if Taiwan and Hong
Kong are included, the fgure is still very small (between 1% and 2% of total global portfolio
allocation). This suggests that, even with normal growth assumptions for the region, a portfolio
rebalancing will inevitably take place and translate into increased asset fows toward China. Given
the disparity between China’s current 11% share of global market capitalization and investors’
0.1% allocation to the country, global investors’ allocation to China could gradually increase by
tenfold, or even more. Still, in the short term, a lack of viable investment channels have meant
that international buyers have few actual means to access this type of exposure, regardless of
the underlying demand.