China Finance

Global Financial Firms Expand in China

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Financial firms across the globe are branching out into the Chinese investment market. In recent months numerous firms have launched funds in China, including BlackRock, UBS Asset Management, Vanguard and Fidelity International.

Chantal Grinderslev of Z-Ben, an investment management consulting firm based in Shanghai, said: “”You can no longer ignore China. You have to plan on being there.”

According to data from Z-Ben, assets under management at Chinese private funds increased 54.6% last year, reaching $398 billion. Between 2005 and 2015, institutional assets in China climbed 500%, starting at $1.1 trillion and hitting $7.1 by the end of 2015.

UBS Asset Management received a license to manage private funds in China this past summer. The firm’s managing director and head of China strategy and business development Aries Tung explain in an email: “China is a key growth market for UBS Asset Management. Our goal is to be a leading asset manager in China for both onshore and offshore investors. The license allows UBS Asset Management to start managing money for mainland institutional and high-net-worth investors in the world’s second-largest economy for the first time.”

In July, the Boston Consulting Group predicted that China will become a leading source of “significant” gain over the next few years. Their report states: “The Chinese market and its investors are becoming more sophisticated. An aging population and the growth of wealth are expanding demand for dedicated products, including target-dated funds and ETFs.”

According to EisnerAmper’s Timothy Speiss, “China could very well be number two or number three in hedge funds and private equity within the next two to three years.”

East Asian Giants Strengthen Financial Ties

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Japanese Prime Minister Yoshihiko Noda recently visited Beijing to meet with China’s leaders. The two governments revealed a surprising plan to use their own currencies in bilateral trade, instead of in U.S. dollars, as part of an effort to strengthen financial ties between the two economic giants. The pledges came as a shock; the countries are competitively the second and third largest economies in the world. They also struggle with political issues regarding territory and other disagreements.

The East Asian countries also agreed to encourage the sale of bonds denominated in China’s yuan by foreign markets, Japanese companies as well as the Japan Bank of International Cooperation in China’s markets. Until now, these markets have been mostly closed to investors from outside.

“To support the growing economic and financial ties between China and Japan, the leaders of China and Japan have agreed to enhance mutual cooperation in financial markets of both countries and encourage fiscal transactions between the two countries,” the governments said.

East Asia is the fastest-growing region in the world today. This recent development is likely to significantly reduce the U.S. dollar’s dominance in the area.

Yuan Strengthens, But Asian Stocks Plunge

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For the first time in seventeen years the yuan has surpassed 6.4 per dollar, thanks to the Federal Reserve’s efforts to keep interest rates low. According to the International Monetary Fund, the stronger yuan will help governments reduce inflation and rebalance the nation’s development, as well as stabilize the global economy.

“The inflation and trade data, together with the Fed’s policy to maintain extremely low interest rates, have fueled faster appreciation,” explained Banny Lam of CCB International Securities in Hong Kong. “Strong economic growth, supported by the latest export figures, also provides investors with confidence to buy the yuan in these turbulent times.”

However, the European debt crisis has had a negative effect on the positive turns in Asia. In countries such as Japan, stocks have suffered severe losses. Mazda Motor Corp, the Japanese carmaker, is one of many companies highly dependent on Europe. Mazda has slumped 4.3 percent, while Canon Inc., Nikon Corp. and numerous others have met similar fates.

“As Europe’s debt crisis spreads, concern is mounting about damage to the financial system,” explains Mitsushige Akino at Ichiyoshi Investment Management Co. “We may slip back into a global equity slump.”