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Appetite towards China set to continue post Covid-19
The Chinese market is gaining traction, especially from long-term investors
2 Apr 2020 | Janette Chen

THE Covid-19 breakout is adding to the uncertainty of global markets, and as a result, investors are showing increased interest in Asia and China. And this trend will continue even after the health crisis has ended globally.

“The world is entering into a recession. We should not kid ourselves. Flat is becoming the new up. We know profits will likely decline this year and we cannot stick to our previous profit forecasts," says Steve Ellis, global chief investment officer, Fixed Income, at Fidelity.

The new norm is reshaping many of the investment strategies and portfolio structing of investors around the world, and the market has seen a notable increased interest in Asian markets. “Still too early to say if Asia is through the virus. But when you look at Asia, they are getting back to activity. There is going to be real income generated within their economies,” says Andrew McCaffery, global chief investment officer, Asset Management, at Fidelity.

The Chinese market, in particular, is gaining traction, especially from long-term investors. Major insurance companies have increased their holdings of Chinese A-shares, according to a source in a Chinese insurance company, and the regulator also encourages qualified insurance companies to increase their asset allocation in equities.

However, whether the appetite towards the Chinese market will be able to maintain momentum after the pandemic dissipates is another crucial topic to think about, especially for longer-term investors. 

In fact, global investors had already started increasing their holdings in China since the weight increase of A-shares in the MSCI indices started in 2018, and with Covid-19 being an accelerator, the interest in China will continue even after the health crisis ends, according to a senior executive from a global custodian bank. 

Since the index inclusion, the bank has seen a large number of European and US asset managers managing accounts for asset owners from the US, Europe, Australia, etc., investing into China, but they have not become active yet. The investors were more at the preparation stage for the increasing index inclusion. 

“What we have seen in the last couple of weeks, is that a number of those asset management accounts were activated earlier than expected because they see the opportunity the market has created in the current environment,” says the banker. 

“We hear rumors from time to time about new connect schemes connecting China with Germany, Switzerland, Singapore and the US,” he adds, noting that even after the global market has normalized over the coming months, the trend of global investors continuing to increase their holdings in China will not fade out.

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