Super funds pressured to put patriotism before profits

Australian super funds will be forced to consider whether it's ‘appropriate’ to allocate members’ money to Chinese assets.

Australian super funds will be forced to consider whether it’s “appropriate” to allocate members’ money to Chinese-listed companies and assets amid worsening atmospherics around Chinese commercial, security and human rights issues.

The comments by London-based James Aitken of Aitken Advisory, speaking at a UBS investment conference in Sydney, came after leaked official documents at the weekend detailed how Chinese authorities had pursued a “no mercy” campaign aimed at repressing ethnic Uighur Muslims, and amid escalating violence in Hong Kong.

“I’m concerned that as we move through the next several years, there will be more and more questions about whether it’s appropriate that at a time where there are obvious domestic security concerns about certain aspects of CCP (Chinese Communist Party) behaviour, Australian savers are potentially underwriting stuff that might be used against us,” Mr Aitken said. “These questions aren’t going away.”

American funds are already grappling with how to balance the enormous opportunities of investing in China against the political risk of being seen to be working against American interests by funding Chinese companies, Larry Jeddeloh, managing director of strategy firm TIS Group, said.

On on the same panel as Mr Aitken, Mr Jeddeloh detailed a recent conversation with a “very large” American public university endowment fund. This fund, Mr Jeddeloh said, had received a presentation from a “famous hedge fund in the US” rumoured to have tens of billions invested in China.

After a three-hour primer on why to invest in China, the endowment fund’s chief investment officer summed up the dilemma facing them: “So, what’s it to be: patriotism or profits?”

“I think that is exactly what’s coming,” Mr Jeddeloh said. “Public pension funds are already getting pressure from the trustees to look at this issue: ‘Are we buying Chinese stocks? Do our current managers have allocations to China?’ That’s where it starts.”

The most obvious political pressure has come from American senator Marco Rubio, who has publicly criticised the decision by financial services firm MSCI in August to increase the representation of Chinese stocks in its global equity indexes, which are tracked by trillions of dollars.

Mr Aitken asked whether it was appropriate that a “growing proportion of American and Western savings are being automatically allocated to companies that might not necessarily be our friends?”