India vs China: Sovereign Wealth and Public Fund Foreign Direct Investments
Posted on 12/01/2020
Over the past decade, sovereign wealth funds and public pensions have augmented direct investment exposure to both India and China. Portfolio geographic diversification, growing middle classes, and enhanced investor protections have lured foreign institutional capital to the East. In this brief analysis, SWFI excludes fund commitments and only counts cross-border investments to see how foreign public institutional capital feel about moving capital between China and India. Direct investments can be perceived as a stronger confidence signal in overseas investing versus allocating capital to an external fund manager. Furthermore, in this analysis, SWFI grouped China with Hong Kong as political barriers between the two have weakened, while many Chinese companies use Hong Kong as a financial center to raise foreign capital.
Direct Cross-Border Investments by Sovereign Wealth Funds and Public Pensions into India vs. China
Filter: BuyerTypes: Sovereign Wealth Fund, Public Pensions. Exclude fund commitments. Billions USD.
Only cross-border investments. Access the data on SWFI.com (Global Asset Owner Terminal).
In 2019, the switch occurred in where sovereign investors and large public pension funds placed heavier bets into India versus China. Political instability in Hong Kong sent shockwaves to Western foreign investors in China, as well as trade protectionist policies being blasted tit-for-tat between America and China. All the while, India has had relative political stability with the Modi administration. India has made inroads in courting foreign investors, especially in real estate, consumer-focused technology, lending, and infrastructure. Modi’s government even created the National Investment and Infrastructure Fund to lure foreign patient capital to partake in India’s infrastructure story.
Foreign Direct Investment Appetite in China
Sovereign funds and public pensions remain bullish on China for the long-term, according to investment patterns observed by SWFI and annual report letters from the CIOs of these organizations. However, the digital and trade divide between the U.S. and China has prompted some public funds to slow down money funnels into mainland China. Besides the Singaporean sovereign investors of GIC and Temasek Holdings who remain heavily allocated to Chinese investments – the Brunei Investment Agency, Public Investment Fund of Saudi Arabia, and the Qatar Investment Authority have scoured to find disruptive Chinese companies to take bets in before their public debut. Canadian public pension funds still remain setup in Hong Kong, while blazing trails into mainland China in real estate and technology companies. Canadian public funds still heavily rely on partnerships to access China. Canada Pension Plan Investment Board (CPP Investments) is betting billions on Chinese logistics, including a long-term investment in the Goodman China Logistics Partnership. CPP Investments also participated in investing in Ant Group (formerly Ant Financial), but the derailing of Ant’s IPO reminded Western public pensions about the power and influence of the Chinese Communist party system. European pensions and SWFs remain more cautious on direct investing in China versus their Canadian peers. One major European outlier is APG Asset Management, which oversees the Stichting Pensioenfonds ABP. APG Asset Management has offices in Hong Kong and a representative office in Shanghai.
China greatly benefitted from the pre-Trump world order, otherwise the post-Cold war world order, in which the U.S. took a backseat on trade deals to promote capitalism and American values. During the Cold War, communist China did not embrace the World Bank until 1980. As China sits on massive cash reserves of around US$ 3 trillion and with the second largest economy in the world, China still borrows from the World Bank. Trade alliances are shifting. Recently, China announced tariffs to Australian wine importers, further fraying economic ties.
In sharp contrast, sovereign funds and foreign pensions are attracted to India’s massive insular market. Within the private market sphere, sovereign investors started with traditional infrastructure investments, real estate, and lending companies, moving onto retail companies and betting even more on renewables such as solar power. Gulf-based sovereign funds, with traditional ties in India, stepped up participation in direct investments. In 2020, Saudi’s PIF acquired a 2.04% stake in Reliance Retail Ventures Limited for US$ 1.3 billion. Other SWFs jumped in as well. Reliance Retail Ventures Limited is a subsidiary of Reliance Industries. In addition, the Abu Dhabi Investment Authority (ADIA) and PIF have invested over US$ 1 billion in Reliance Industries’ Digital Fibre Infrastructure Trust. ADIA is investing US$ 506.8 million. Singaporean SWF money continues to pour into India. In 2020, GIC and Brookfield Infrastructure Partners L.P., and other co-investors, scooped a 100% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited.
As artificial intelligence and digitization of industries propagates, sovereign funds and public pensions will still have anchors to China and the U.S. The coronavirus pandemic reshuffled the world order of SWF investments for the time being. As people adjust to the new normal, the probability of a vaccine being effective and properly distributed, and changes in trade policies, are all factors that will influence the velocity of sovereign wealth and public pension capital in China and India.