Black­Rock sees A shares as mag­net for global funds

China Daily (Hong Kong) - - BUSINESS - By DUAN TING in Hong Kong tingduan@chi­nadai­

Mor­gan Stan­ley Cap­i­tal In­ter­na­tional’s in­clu­sion of A shares in its widely tracked in­dices — start­ing from next sum­mer — could be a cat­a­lyst for lead­ing global in­vestors to pile into the Chi­nese main­land’s on­shore mar­kets de­spite con­cerns about liq­uid­ity, ac­cord­ing to heavy­weight an­a­lysts at the world’s largest as­set man­ager.

Wen­jie Lu, who joined Black­Rock in Fe­bru­ary as the China in­vest­ment strate­gist and was pre­vi­ously with UBS Se­cu­ri­ties, said flows into main­land’s equities were still ex­pected in the sec­ond half of this year.

But, the strate­gist added, the liq­uid­ity of the A-share mar­ket was an is­sue as China’s fi­nan­cial lev­er­ag­ing will con­tinue and A-share mar­ket will take time to at­tract more fund flows.

Lu added that the on­shore mar­ket is in­cluded in the bench­mark emerg­ing-mar­kets in­dex, but the way over­seas in­vestors ac­cessed the on­shore mar­ket still needed to im­prove.

Lu said he be­lieved cap­i­tal will tend to flow into large and mid­dle-cap com­pa­nies in both on­shore and off­shore mar­kets in the sec­ond half — as many global in­vestors have large amounts of cash and are will­ing to im­prove their ex­po­sure to emerg­ing mar­kets.

Lu said the Hong Kong stock mar­ket had re­ceived in­flows from both global and main­land in­vestors this year and the trend was ex­pected to con­tinue.

He said tech­nol­ogy was the best-per­form­ing sec­tor so far in 2017 and was still pre­ferred but val­u­a­tions were high.

The Black­Rock strate­gist added that he fa­vored fi­nan­cial and in­dus­trial sec­tors in the sec­ond half, as they were un­der­val­ued.

Belinda Boa, the head of Ac­tive In­vest­ment for Asia-Pa­cific and CIO of Emerg­ing Mar­kets, Fun­da­men­tal Ac­tive Equity at Black­Rock, said the com­pany pre­ferred equities in emerg­ing mar­kets, Europe and Asia in­clud­ing Ja­pan.

On China’s econ­omy, Lu said the eco­nomic growth was be­com­ing more sus­tain­able, backed by fi­nan­cial delever­ag­ing and sup­port for the pri­vate sec­tor.

The gov­ern­ment has al­ready started fi­nan­cial delever­ag­ing and many fi­nan­cial in­sti­tu­tions have been cut­ting ex­po­sure to shadow bank­ing credit, giv­ing the over­all fi­nan­cial sys­tem much cleaner balance sheets and more suf­fi­cient cap­i­tal for fi­nan­cial in­sti­tu­tions to pro­tect them­selves, Lu added.

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