China's economic policies make short-term attractiveness for foreign investors

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Aug 6 - The unpredictability of China's regulatory measures make it unappealing to foreign investors in the short-term, following its latest crackdown on the technology, property and education sectors, global fund managers said.

If these measures were turned into meaningful reforms that reduced data and protected monopolistic practices, they could increase China's long-term attractiveness, they told the Reuters Global Market Forum this week.

I think investors don't like the uncertainty of not knowing what is the next shoe to drop, said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Haefele, who runs the largest wealth manager with $3.2 trillion in assets, said it was still early days and he would wait to see how long this plays out.

Interested foreign investors will be absolutely circumspect in the short term about starting investment in China, said Yicheng Zhang, director of Chinese private equity firm CITIC Capital.

Even though China's strategic moves were expected due to the country's shifting focus to common prosperity, the specific tactics used were unexpected and have caused shockwaves, Hong Kong-based Zhang, which manages $36 billion, said.

Fundamentally, it surprised me as well, turning some of these companies overnight to not-for profit entities, he said. This had added foreign investors' concerns about these measures' lack of respect for property rights was understandable.

China's moves to liberalise its financial markets over the last few years, together with its low valuations within emerging market sectors, are also helping retain the country's long-term appeal.

China wants to open its financial markets and that they know that to do so effectively, they need to move more cautiously as they institute these reforms, Haefele said.

That would be a very positive narrative, he added.

Haefele stated that his exposure to China was in line with a broad long-term emerging market allocation, and was bullish on various sectors including fintech, health tech, sustainability and 5 G.

Justin Onuekwusi, LGIM's head of retail multi-asset funds, said his firm continued to hold Canadian stocks as they represented better value at current levels than their European and U.S. peers.

Meanwhile, financial company AIA's CIO Mark Konyn, managing $230 billion, viewed the crackdown as only a transitional phase.

Zhang believed China was investable in the long term as the actions were not a shift in policy direction. People will understand that this is more an accident than a trend.

The actions have in fact cooled some of the market frenzy, making valuations pretty cheap in some sectors, he said.

Zhang said CITIC Capital's investment strategy was focused on buyout-related traditional sectors, including business services, consumer, healthcare, and non-internet technology.

However, the education sector hit rock bottom, Zhang said, adding that with the short-term policy outlook looking uncertain, it's best to be kept off the sidelines for now.