Asset managers shrug off Chinese market sell-off, Cerulli says

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Cerulli Associates has said that China represents a significant opportunity for asset managers, as the country’s assets under management grew 34.0% in 2020 and net inflows increased 21.8% year-on-year.

According to the consultancy’s latest report – Global Markets 2021: Continued Growth in Uncertain Times – the Chinese fund market had an impressive 2020, with net revenues rising 37% year-on-year.

This growth was supported by strong local equities – the MSCI China recorded a 29.7% return last year, exceeding its 23.7% return in 2019.

This was despite the recent sell-off of especially Chinese tech and education company stocks as concerns around regulatory crackdowns continued.

Although the COVID-19 pandemic has wreaked havoc on global economies, Cerulli said, it has not dampened investors’ enthusiasm for Chinese investment opportunities.

This is contrary to what some Dutch pension funds, for instance, have reported. ABP, the largest Dutch pension fund which has a dedicated China portfolio worth over €20bn as of 31 March 2021, had to nurse heavy losses as companies it owns – such as Alibaba and Tencent – were hit hard by regulatory action in the past few weeks.

Major pension funds in the Nordic region, however, have indicated that they did not see recent behaviour by Chinese regulators – which led to heavy selling of some stocks this summer – as a big concern.

Cerulli’s research showed that overall investors remain bullish about China’s stock market as regulators push for the development of funds investing in equities.

“We expect investors to show continued interest in Chinese equities in 2021 and beyond, based on the country’s earlier recovery from the pandemic and its growth prospects relative to other markets,” said André Schnurrenberger, managing director, Europe, at Cerulli.

“As for bonds, investors are set to favour Asian fixed income because it currently offers better yields than bonds in developed markets.”

Cerulli expects Asia ex-Japan retirement funds to continue to lead in terms of growth, rising at a compound annual growth rate (CAGR) of 11.9% between 2020 and 2025.

Although all markets in the Asia-Pacific region will likely exceed the global CAGR, China and Korea stand out, with their CAGRs expected to reach double digits, the report noted.

The research also showed that North American pension funds are looking to opportunities in Asia. Canadian pension funds, including the Canada Pension Plan Investment Board and Ontario Municipal Employees’ Retirement System, have been growing their Asia-focused teams to match their expanding investments in the region.

Cerulli added that the Nationwide Pension Fund in the UK and the Iowa Public Employees’ Retirement System in the US have both indicated their interest in including more Asian private debt in their portfolios.

“Investors around the world believe that emerging markets, particularly in Asia, are making better progress in their economic recovery from COVID-19. As a result, they are keen to increase their exposure to such markets,” Schnurrenberger said.