This year may be a good time for global investors to add holdings in Chinese financial assets, as the nation's efforts to open its capital markets and pursue quality economic development offer "unprecedented" opportunities, according to global asset management giants.
"China's capital markets are not only huge and liquid but have a relatively low correlation with other global assets," said Ben Powell, Asia-Pacific chief investment strategist of BlackRock Investment Institute, a think tank of BlackRock, one of the world's largest investment management companies.
"This, plus China's capital market opening-up that has made it easier for international investors to access the markets, undoubtedly presents an unprecedented opportunity for investors," Powell said in an article released on Thursday.
Marked by the inclusion of Chinese assets in global investment benchmarks, the country's capital markets made historic progress in internationalization last year, and the timing for global investors to consider strategic allocation of Chinese equities and fixed-income assets may have come, Powell said.
In April, Bloomberg Barclays added Chinese bonds to its global benchmark, while the MSCI quadrupled the inclusion factor of A shares in its investment benchmarks by three steps last year.
The BlackRock Investment Institute expected returns on Chinese stocks and bonds to be at the high end of the range against its global counterparts, considering the sheer magnitude of China's growth and its improving quality, according to a report the institute released last month.
Manu George, senior investment director of fixed income with Schroders, another global asset management firm, said a moderation in the rate of growth in the midst of economic upgrading will benefit China's bond market.
As the central bank tries to avoid the excessive deceleration of the economic growth, China may see lower interest rates in the long run and therefore provide a solid foundation for bond markets. Bond prices go up when interest rates drop.
"With the broader economic conditions moving arguably in favor of bond markets, and regulatory change opening the markets to a wider investor base, we think a key moment is approaching for Chinese fixed income," George said.
JPMorgan has announced that it will include Chinese government bonds in its global benchmarks by the end of February, and George expected that FTSE, the other major bond index provider, will follow suit in the short to medium term.
Chinese equity assets are also becoming more attractive to global investors, as stock-connect programs between Chinese mainland and Hong Kong bourses saw a net foreign inflow into mainland stocks of more than 350 billion yuan ($50 billion) last year, the highest level so far.
Xu Gao, chief economist with BOC International, said more foreign investors have been expanding their holdings in the A-share market recently as the market offers an "attractive" valuation level by global standards, and as China's prospects for economic growth stand out among major global economies.
Powell expects the Chinese government to focus on both the quality and quantity of economic growth in 2020, with prudent monetary policy cooperating with countercyclical fiscal policies to maintain a healthy rate of growth.
"We are very selective in the China A-share market but also see great opportunities over the long term," said Nicolas Yeo, head of China equities with global asset manager Aberdeen Standard Investments.