October 04, 2021
It’s no secret today that China is a huge and rising force in the global economy. In fact, it’s the second-largest economy in the world and will undoubtedly pass the United States in the years ahead to become the largest.
As an investment firm that has long conducted business in China and partnered with many local experts, we’re well-positioned and excited to share what we’ve learned to help investors get to know this fascinating market.
I met with my Invesco colleagues, Andrew Lo, senior managing director and head of Asia Pacific, and Anna Tong, the regional head of investments, to discuss China’s impact on the global economy.
Marty Flanagan, President and CEO:
Anyone watching the news today understands that China is a huge and rising force in the global economy. It is already the second-largest economy in the world, and no doubt will be passing the United States in the years ahead to become the largest economy in the world. Responding to, and understanding China's rise, is the single-greatest opportunity and challenge of our lifetime. Even if you're not directly investing in China, understanding the economy, its strength, the dynamic elements of it, is something that is beneficial for any investor, or anybody that runs a business.
Marty Flanagan: China is expected to also become the second-largest investment management market by the year 2025, which is not too far away. Invesco's deep roots, our decades of experience, our joint venture, and our local expertise in China have all contributed to our leadership position in this very important market. We've created this video series to help clients better understand the opportunities and the challenges in China. Joining me today are Andrew Lo, senior managing director and head of Asia Pacific, and Anna Tong, the regional head of investments.
Marty Flanagan:
Andrew and Anna, welcome. I’m thrilled to be with you and I look forward to our dialogue. Andrew, let me start with you, just to get everybody oriented. Could you take a minute and give an overview of our business in China?
Andrew Lo, Senior Managing Director and Head of Asia Pacific:
We've been doing business in China for many years. We first started an offshore product that invests into China, managing it from Hong Kong since 1992. And then we established our business through a joint venture in 2003 with the Invesco Great Wall. And today we have a pretty large business, with about $92 billion of assets under management from China, with about 300 employees and a strong investment platform with great investment performance that invests in Chinese equities, quantitative method, as well as fixed income.
Andrew Lo:
And in terms of distribution, that's interesting. We have about 43% of the client assets coming from digital channels, and then 28% each from institutional and the traditional bank distribution channel in China.
If you’re interested in investing in China, consider the risks and potential rewards of various investment portfolio strategies.
Marty Flanagan, President and CEO:
If I am interested in Asia, but more specifically in China, how would you recommend to proceed to invest in the region?
Anna Tong, Regional Head of Investments, Asia Pacific:
I would recommend that, depending on the investor's risk appetite, they can either invest in Asia as a region, or they can have a dedicated exposure to China. And that would comprise of China onshore A-shares listed on the domestic stock exchanges, as well as offshore listings of Chinese companies in Hong Kong as well as in American depository receipts.
Anna Tong:
I would emphasize, however, that investors should go with an active approach, because they should try to take advantage of not only the beta opportunities, but also try to capture the alpha opportunities. For investors that have not invested in Asia or China, we would suggest that they engage a market specialist with a strong local presence with a well-articulated investment process, time tested through the cycles. China has its opportunities, but also there is a language barrier. There are nuances. So, it's very important for investors to find a trusted advisor, somebody who can help them navigate unfamiliar territory and understand not just opportunities, but also the risk involved as well.
Investors should not only take advantage of the beta opportunities, but also try to capture the alpha opportunities. Our long-standing presence in China can help navigate unfamiliar markets and risks.
Marty Flanagan, President and CEO:
As China continues to open up its markets, what's come along with that is that China's becoming a greater weight in the major equity indexes and fixed income indexes. And, as you and I, Andrew, as we visited clients over the last number of years, very sophisticated institutions are now stepping back and saying, "What should be my asset allocation in China?"
Andrew Lo, Senior Managing Director and Head of Asia Pacific:
The other major indices, global indices, we have the Chinese equity and fixed income goes to inclusion. We have seen a lot more interest, both in the equity and also in the fixed income area. Especially in the last year or so, we've seen a lot of pickup. And we’ve seen that through the stock connect program and through the bond connect program, global investments going into China. We are also seeing that in the Renminbi. There's quite a strong currency regarding flows that we have experienced going into China. So certainly, we can see the pickup in global interest, both from the institutional investment base, as well as from retail and ETF as well. So that's a trend that I think will probably continue to grow, given the structural underweighting of investments going into China.
Learn how the Asian equity team has been integrating ESG into the investment process.
Marty Flanagan, President and CEO:
You know, from my perspective, Europe's been leading the way, EMEA in particular. We've done, I think, a very good job of building ESG into our investment management processes, but let's turn our attention to China. So, ESG in China, what's next, from your perspective, for ESG in China and as it relates to Invesco in particular?
Anna Tong, Regional Head of Investments, Asia Pacific:
For the Asian equity team over the last few years, we have integrated ESG into the investment process. So when we look at Asian companies, when we look at Chinese companies, we pay a lot of attention to ESG and consider the implication of ESG on the risk, as well as on the potential operation of the company. And that is something we take into consideration when we consider the valuation of what we should pay for these companies.
For China, domestic Asia's in the past. ESG was not a high priority, but as we are well aware, President Xi has declared that China wants to become carbon neutral by 2060. And over the last year or so, we have seen policymakers increasingly putting the emphasis on ESG. We used to have a problem in terms of data availability, particularly when it comes to environmental-related data. But, all of a sudden, in the last three years, there are over 200 data vendors coming up with more ESG- related data. So I believe that going forward, we will be putting more emphasis on ESG. We have always put a lot of emphasis on the G — the governance — but, increasingly, social aspects are becoming important.
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These videos were produced for Institutional Investors, is for educational and informational purposes only and is not to be construed as investment advice or an offer to buy or sell any investment product. The opinions expressed are based on current market conditions and are subject to change.