China standalone investing – why and why now?

China standalone investing can give you greater China exposure compared with just investing in a global index.

22 Apr 2020

China standalone investing – four reasons why

  • Investors can get more China in their portfolio by having the option of a standalone allocation – global indexes underestimate China's importance;
  • China's economy may recover earlier from Covid-19 than others, therefore a larger allocation - via a standalone strategy - may allow investors to fully capture an even greater rebound;
  • Global investors aren't in wait and see mode, they are increasing their China investments. Hesitant investors may miss out on the potential opportunity;
  • China's economy will play a bigger role in the world in the future, investors need to prepare and a standalone allocation is an excellent way to do this.

China standalone investing - why?

You can get more China exposure with a dedicated, standalone strategy.

You won't in a generic, global index allocation.

That's because global indexes underestimate China's importance.

Look at the MSCI All Cap World Index (ACWI) - the world's biggest equity benchmark.

5.2%¹ of the MSCI ACWI is China stocks, but China accounts for close to 20% of the global economy².

Fixed income has the same story.

China is 3.1% of the world's largest bond index.

However, China has the world's second largest bond market at USD 14 trillion.

5.2% of the MSCI ACWI is China stocks, but China accounts for close to 20% of the global economy

Country weightings in the Bloomberg Barclays Global Aggregate, March 2020

Clearly, there's a mismatch. 

Investors won't get enough China by following a global index. So that's why a China standalone strategy with higher exposure makes sense.

Why now?

#1: China is recovering faster from Covid-19

China was the first to experience the Covid-19 outbreak. Now it is the first to move out of lockdown.

Recent data on activity indicators show China is beginning to return to normal. In the rest of the world, a number of economies remain under strict controls.

Congestion Data in Chinese Cities Show a Return to 2019 Levels

So now could be the time to seek a dedicated China equity, bond, or multi-asset strategy to get more exposure to China, if - as expected - China recovers faster than in the rest of the world.

#2: The smart money is already flowing into China assets

Global investors aren't waiting on the sidelines when it comes to China investing.

In fact, they are moving in rapidly. At the end of 2019, global investors raised their equity and bond holdings by 83% and 32% y-o-y to a combined RMB 4.4 trillion (USD 620 billion)3.

If these investors represent the 'smart money,' then they are getting first mover advantage.

For those investors keen to catch up, we see a China standalone strategy as being the best way to do it.

"Foreign investors owned RMB 4.4 trillion (USD 620 billion) of China bonds and equities at the end of 2019, up 52.4% y-o-y"

Overseas Investors' Holdings of China Equities & Bonds (RMB Trillions), Jan 2016-Dec 2019

Source: People's Bank of China, March 2020

#3: The world will soon be a different place, and now is the time to get positioned

While COVID-19 is changing everything, we see profound long-term changes happening in the global economy.

During the past 20 years China has risen up the ranks to become one of the largest economies and it is likely to maintain that position in the next few years.

That means allocations will have to change to recognize China's weight.

While indices are moving to reflect this, albeit slowly, it will be some time before they reflect China's true role in the world.

So for those of you investing for tomorrow, we believe that getting a strategic positioning with a China standalone strategy today is sensible.

With that you'll not only prepare for China's expected rise to the top, but enjoy the potential benefits as it gets there.

As with time-tested life lessons, so it is the same with Chinese investing – if the best time to plant a tree was 20 years ago, the second best time is now.

Contact us to learn about our full range of China investing strategies.

Watch Barry Gill, UBS-AM Head of Investments, explain the benefit of a China standalone strategy here: