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Chinese assets are transitioning from being an optional element in international investment portfolios to an essential component, according to chief economists from major global financial institutions like Morgan Stanley and Standard Chartered. This shift was highlighted during a recent forum in Shanghai, where key topics on the agenda included institutional opening-up of the inter-bank market and global capital distribution.
This trend is considered the natural result of diversified global capital allocation, according to Xing Ziqiang, the chief economist for China at a New York-based investment bank. He spoke at the “Global Financial Institutions Enter China’s Financial Market” conference held on April 17, attended by representatives from nearly 60 financial firms across 20 countries and regions.
Against the backdrop of stability in Asia and turbulence in Western markets, international investors are gradually moving away from relying solely on single-currency assets like the US dollar. Chinese yuan-denominated assets are expected to continue drawing investments as global portfolios undergo rebalancing, Xing explained.
A few years ago, many international investors considered Chinese assets too risky or “uninvestable,” but perceptions have shifted significantly in recent times, remarked Ding Shuang, managing director and chief economist for China and Northeast Asia at a British bank.
This renewed interest is driven by increased uncertainty surrounding external factors and optimistic profit forecasts stemming from China’s ongoing investments in sectors like artificial intelligence and renewable energy, he said.
As China’s market grows and trading mechanisms become more sophisticated, international investors now see the country less as a regional add-on and more as a core element of their global investment strategies, according to Shu Chang, chief economist for Asia-Pacific at Bloomberg. She added that the way Chinese assets are allocated is also evolving from passive holdings to active management.
Shu emphasized that the foundation of asset performance lies in long-term structural changes within the economy, not just short-term economic cycles. Innovations in technology and a green transition are creating a new asset logic that offers markets more sustainable sources of profit.
Nonetheless, challenges persist if China aims to move from structural improvements to sustained growth in asset returns. Currently, yields from yuan-denominated assets are relatively low, primarily due to weak domestic consumption and low inflation.
Without a boost in domestic demand, broader improvements in corporate earnings and significant increases in asset returns will be difficult. Enhancing consumption will necessitate reforms in income distribution, such as improved social security systems and transfer payments, to reduce households’ saving for precautionary reasons.
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