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Saturday 25

November, 2017 1:09 PM

China markets to lure Aust super funds

China markets to lure Aust super funds

Access to the $US7 trillion Chinese stock market could become an irresistible opportunity for Australian super funds.

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By AAP 09.11.2017 04:45 PM

Australian superannuation funds will increase their exposure to Chinese markets despite the volatility and risks that have characterised China's equity and capital markets in recent years, a regional investments expert says.

HSBC's Greater China chief executive Helen Wong says Australia, as home to the world's fourth-largest superannuation pool, will see attractive opportunities as barriers that have barred foreign investment in China are gradually lifted.

In June, the MSCI emerging-markets index - a benchmark of measuring equity markets in emerging economies - included 222 Chinese companies currently trading on the Shanghai and Shenzhen exchanges in the first major inclusion for Chinese shares.

The MSCI inclusion is set to trigger an inflow of foreign capital into untested Chinese bond and equity markets - markets that have been beset by scandals, state intervention and trading halts.

Ms Wong, speaking at the HSBC Australia-China Conference in Sydney, said the the $US7 trillion Chinese stock market will become an almost irresistible opportunity for Australian super funds.

HSBC says foreign investment flows into China via the newly launched Bond connect and the Shenzhen-Hong Kong stock connect will hit US$500 billion over the next five to ten years.

Launched in July, the Bond Connect permits foreign investments in Chinese debt markets, while the Shenzhen-Hong Kong Stock Connect eases restrictions on some mainland and foreign investors to trade a selection of Hong Kong and China-listed shares on the other's market using their own brokers.

However holdings among foreign investors today still only account for around two per cent of China's stocks and bonds.

"As Australian superannuation funds outgrow local capital markets, they will increasingly need to look overseas - and China represents an attractive destination," Ms Wong said.

Ms Wong said that while the confidence to invest in untested markets takes time, the chance presented by open access to Chinese capital markets will ultimately trump concerns over events such as the 2015/16 stock collapse where the value of A-shares on the Shanghai exchange fell by a third in four weeks prompting extraordinary - and largely ineffectual - state attempts at intervention.

"I think this is real, if China stocks are included (in the MSCI), it's unlikely investors will ignore it and as an institutional investor you want to do it," Ms Wong said.

The MSCI inclusion is the latest step correcting a mismatch between China's economy and its stock market, Ms Wong said, because China accounts for 15 per cent of global GDP, while Chinese equities account for only about three per cent of global equity fund allocations.

"Bridging this gap is only a matter of time, and surely it will serve up plenty of investment opportunities for investors in Australia," she said.

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