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JPMorgan Asset Management gears up for stronger global demand for Chinese stocks

Company secures additional investment quota from Chinese regulators

PUBLISHED : Thursday, 19 July, 2018, 12:39pm
UPDATED : Thursday, 19 July, 2018, 1:15pm

JPMorgan Asset Management has been granted an additional quota under the Renminbi Qualified Institutional Investor scheme, which allows foreign fund managers to invest in onshore yuan securities using offshore renminbi, expanding the global asset manager’s capacity to invest on the mainland amid growing investor interest in the Chinese A-share market.

While the [MSCI] inclusion itself is of a low percentage, it’s only going to grow
Michael Falcon, chief executive Asia-Pacific, JPMorgan Asset Management

The additional capacity, amounting to 5 billion yuan (US$748 million), was approved by China’s foreign exchange control regulator last month, increasing JPMorgan Asset Management’s total quota to 6 billion yuan.

The company’s application for the additional quota came amid the inclusion of 226 Chinese large cap stocks in the MSCI Emerging Markets Index, tracked by US$1.9 trillion in global funds, which has created strong demand from foreign investors.

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“Given the current levels of inclusion … it will not be a giant instant flood of money into A shares, as many institutions and investors with benchmark-aware strategies already have exposure in China. While the inclusion itself is of a low percentage, it’s only going to grow,” said Michael Falcon, the company’s chief executive for Asia-Pacific.

The A shares’ aggregate weight on the MSCI index will be at 0.78 per cent by September.

The company’s application for additional capacity under the scheme, one of many mechanisms through which China allows foreign investors to make portfolio investments in the onshore capital markets, coincides with its plan to increase the local research capabilities of its wholly foreign-owned enterprise unit. JPMorgan Asset Management is looking to build up its coverage of Chinese companies as foreign fund managers compete for what could amount to at least US$17 billion in new inflows into Chinese stocks.

Next on the cards is the inclusion of Chinese government and policy bank bonds in the Bloomberg Barclays Global Aggregate Index, starting April 2019. Falcon said this will be a precursor to more global demand for participation in Chinese capital markets.

The company’s onshore research build up, coupled with its offshore research, is intended to support its A-share, H-share, multi-asset and multi-strategy funds investing in China, said Falcon.

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Its wholly foreign-owned enterprise unit received an approval for a US$50 million quota under the Qualified Domestic Limited Partners scheme, an outbound investment plan, earlier this year. The scheme allows fund managers in China to raise money domestically for investment in alternative strategies managed offshore.

Falcon said the small size of the quota meant there are likely to be “one or two” products that can be distributed. Globally, JPMorgan Asset Management has more than US$130 billion in assets under management in alternative strategies. In Asia, it has more than US$172 billion in assets under management.

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He did not give specifics about how the US$50 million quota would be used, but globally, the company’s alternative funds cover private infrastructure, such as power generation, including wind and solar power assets, and social infrastructure assets, such as hospitals and schools.

For onshore public and private funds catering to Chinese investors, JPMorgan Asset Management has a 49 per cent-owned joint venture called CIFM with Shanghai International Trust Company, a subsidiary of Shanghai Pudong Development Bank. Falcon said the company was working with its partner and the regulator to increase its stake to more than 50 per cent, but did not provide further details.

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