Asian Equities Attract Asian Public Investors

Shanghai SE Composite Index - July 2012Asian public investors view China and India as key growth drivers whose public equity markets are poised for increases as GDP continues to rise for these countries. Many subscribe to the notion that China and India have the capacity to maintain relatively high economic growth rates compared to European and American economies.

The Korea Investment Authority (KIC) and Korean Teachers’ Pension Fund (KTPF) plan to allocate more assets to emerging market equities particularly in Asia. The KIC plans to two-fold its exposure in emerging markets equity over the next few years. In fact, the KIC has a $200 million Qualified Foreign Institutional Investor (QFII) quota in China.

The KTPF plans to give mandates to fund managers with extensive Chinese investment experience and track records.

South Korea’s central bank, the Bank of Korea invested US$ 300 million into China’s A-shares in June 2012. The Bank of Korea has a 300 million dollar quota under the QFII program. The central bank wants to diversify its foreign reserves. The Bank of Korea has external asset managers including Chinese asset managers targeting Chinese public markets. In late April 2012, the Bank of Korea began purchasing China’s government bonds from the OTC market.

Japan’s Government Pension Investment Fund (GPIF) has already chosen six asset managers to actively manage emerging market equities in its $1.35 trillion portfolio. The GPIF could not find any suitable asset management firms for passive investments in their emerging markets mandate. The GPIF still has a heavy allocation to domestic bonds and stocks.

The Qatar Investment Authority sought approval to invest up to US$ 5 billion in Chinese bonds and stocks. Chinese regulators have an upper limit set at around US$ 1 billion. More foreign investors want access to mainland Chinese publicly-traded assets. Even if the quota is fully utilized, foreign investors would represent less than 1% of total free-float market capitalization in China.

On another note, in mid-July, the New Zealand Superannuation Fund (NZSF) committed $100 million worth of investment to a fund which is building infrastructure projects in China. The NZSF is teaming up with other sovereign funds to invest in infrastructure projects.

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