To capture these opportunities, corporates and institutional investors have been looking for better ways to position themselves and approach the market. At HSBC Qianhai, we are seeing a growing need for a refined China strategy, one that understands the current conditions and utilises partners with close ties to the financial community. Although China has no shortage of potential, realising this requires a thoughtful approach.
To this end, we conducted research to understand how global and Chinese institutional investors and issuers are currently viewing China’s onshore and offshore markets, as well as their priorities in the period ahead.
China’s onshore market is increasingly attractive
In recent years, China’s capital markets have seen increased participation from foreign investors and issuers. Whether it is the sectors they are prioritising or the channels they are using, China’s onshore market is dynamic and continues to attract the world’s largest foreign corporates and institutional investors.
We are seeing this interest across a wide variety of activities. Regarding inflows, in 2020 foreign investors doubled their holdings of Chinese stocks to USD520 billion1 from a year earlier. 78 per cent of our survey respondents2 in 2021 indicated plans to increase their allocations into China by an average of almost 25 per cent over the coming year.
In terms of sectors, infrastructure is receiving the most investment across both debt and equity investors, signalling where current and future opportunities lie as well as aligning with the Chinese government’s growing emphasis on this sector for growth3. Besides infrastructure, logistics and transportation received the second-highest volume of investment from Asia Pacific, UK and European investors, while those from North America prioritised technology.
As interest in China’s capital markets has increased, authorities from mainland China and Hong Kong have been looking to expand access via various cross-border channels, most recently with the launch of the southbound leg of the Bond Connect4. Our research found that fixed-income and equity investors are projected to increase their usage of the Bond Connect and Stock Connect by 8.9 and 11.2 percentage points respectively over the coming 12 months.
However, despite the strong appetite for growth, foreign investors are still facing headwinds, lack of trust in local rating systems and controls on the outward remittance of funds being the top concerns cited among our fixed-income and equity respondents respectively.