Super funds set to punt on China riches

AUSTRALIAN superannuation funds will increase their exposure to Chinese markets despite the volatility and risks characterising those markets in recent years, a regional investment expert says.

HSBC chief executive for Greater China Helen Wong says Australia, as home to the world’s fourth-biggest 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 measuring equity markets in emerging economies — was extended to included 222 Chinese companies trading on the Shanghai and Shenzhen exchanges in the first major inclusion for Chinese shares.

Analysts say the MSCI inclusion should trigger an in- flow of foreign capital into untested Chinese bond and equity markets — markets beset by scandals, state intervention and trading halts.

Ms Wong, speaking at the HSBC Australia-China Conference in Sydney yesterday, said the $9.1 trillion Chinese stock market would become an almost irresistible opportunity for Australian super funds.

HSBC says foreign investment flows into China through the Bond Connect and the Shenzhen-Hong Kong Stock Connect schemes — both launched in July — will hit $US500 billion over the next five to 10 years.

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 Chinese-listed shares on the other’s market using their own brokers.

Holdings among foreign investors today still only account for about 2 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 it took time for investors to develop confidence in untested markets.

But the chance presented by open access to Chinese capital markets would ultimately trump concerns over events such as the 2015-2016 stock collapse, she said.

At that time, the value of Ashares on the Shanghai exchange fell by a third in four weeks prompting extraordinary state intervention bids.

“If China stocks are included, it’s unlikely investors will ignore it and as an institutional investor you want to do it,” Ms Wong said.