Investors want China exposure, despite geopolitical tensions, says top wealth manager

The head of the world’s tenth largest asset manager says investors are crying out for greater exposure to Chinese companies, despite rising geopolitical tensions over China’s approach to trade and human rights.

US-based PGIM is a global asset manager responsible for $US1.5 trillion ($1.95 trillion) in funds under management and chief executive David Hunt said institutional investors want to profit from China’s growth as the government transitions its economy from exports to technology and innovation.

Mr Hunt said it was “not necessarily easy” to invest in the world’s most populous country, despite improvements in corporate China’s approach to transparency in reporting earnings and market sensitive information.

PGIM chief executive David Hunt says it is “not necessarily easy” to invest in China but demand is rising. Credit: Bloomberg

However, he said the global economy will revert to a period of low inflation and slow growth once COVID-19 stimulus packages taper off, forcing investors to seek returns in emerging markets like China.

“When I go around and talk to large institutional investors, the thing they’re most worried about [with] China is that they don’t have enough invested. It’s not about the political tensions, the tariff wars,” Mr Hunt said. “It’s interesting to me that at the moment, there’s kind of a dichotomy between what you read in the press... And what I see on the ground in investing.”

The Chinese government is facing increased criticism for serious breaches of human rights in Xinjiang and its aggressive approach to trade following Australia’s support for the COVID-19 inquiry.

However, China removed restrictions last April to allow fully foreign-owned investment managers to operate in the country and Mr Hunt said the government had been “very welcoming” to asset managers.

“[There] is a real kind of optimism about what the Chinese economy can produce and therefore a desire to put money to work, to be part of it,” Mr Hunt said.

Mr Hunt acknowledged the regulatory and political environment can change quickly – as evidenced by the crackdown on China’s best-known entrepreneur Jack Ma – adding it was important to set up local offices that employ local staff.

PGIM manages around $US22 billion in China, employing 150 staff in Shanghai through a joint venture with Hong Kong-based financial services company Everbright.

Mr Hunt added while it had become easier to invest in China, some difficulties still remain.

“It’s still not as easy as one would like to necessarily ensure you can get your money back out when you decide that you want to harvest that investment,” he said.

“But I would say year by year, it’s getting easier and the currency is now much more freely convertible. The ability to move money in and out of China is much better than it was five years ago. My belief is over the next five years, that will even continue to free up.”

PGIM entered the Australian market in 2012 and manages around $US3.2 billion ($4.12 billion) for local superannuation funds. Mr Hunt said Australia’s $3 trillion super sector was envied around the world, adding there was rising demand for asset managers with international experience.

“You all are truly blessed in the situation where there are enormous excess savings that needs to be put to work effectively,” he said. “[But] what we hear from clients is they have put about as much money to work domestically as they can.”

PGIM is a growth investor, meaning it is heavily invested in fast-growing technology stocks. Mr Hunt batted off concerns this sector was headed for a pricing correction, saying “growth rates still have a long way to go”. However, he warned that cryptocurrencies were “Exhibit A” for speculative bubbles, adding these assets did not have the proven track record to be useful even for hedging.

“We certainly feel there is a big difference between speculation and investment. And we do worry that many retail investors in particular have lost sight of that fact and have started to confuse a bit of the two,” he said. “Some of the dramatic leaps you’ve seen in the some of the crypto-currencies I think are probably not supported by fundamentals at this point.”

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