China’s financial markets could come back stronger and better in the future but investors have lost interest, at least in the short-term, according to Julius Baer’s Asia CIO Bhaskar Laxminarayan in a conversation with finews.asia.
China's financial markets have faced a stampede of challenges. Property-related troubles, regulatory crackdowns, geopolitical risk and significant de-risking, especially by international investors, are among the many headwinds it has faced. According to Bhaskar Laxminarayan, chief investment officer and head investment management APAC at Julius Baer, there is no sign of an imminent reversal.
«China policymaking is currently more focused on nation-building and this may not necessarily be conducive for investors in the short-term. In the long-term, this may be a good decision in the history books but investors don’t have the luxury of waiting,» Laxminarayan said in a recent conversation with finews.asia.
Value Creation
At least for the time being, China’s market is facing a hiccup. This is not unique, Laxminarayan notes, as only a handful of markets have lengthy track records of creating value for minority investors.
«There are very few markets in the world that achieve value creation for minority investors in the long-term,» he said. «US, Switzerland, Sweden and India are the only four markets that consistently do so.»
Bond Comeback?
Nonetheless, China’s financial market could come back stronger and better over time. This could especially be the case for the fixed income market due to the persistent demand for yield.
«China is going through an evolutionary process to clean up excesses built in its economy, particularly from shadow banking and the real estate sector. Every asset market goes through a crisis,» Laxminarayan explained.
«If China can bring back a greater sense of regulations and investor protection, its bond market could become attractive again, especially due to the interest rate level. The China equity market may take more time and we will review its allocation in our overall investment strategy at the right opportunity.»
DPM Business
In addition to investment strategy, Laxminarayan also has responsibilities for the bank's discretionary portfolio management (DPM) business in the region. He notes that there are consistent inflows in this area, though clients continue to deleverage.
This year, Julius Baer has made two additions to its DPM shelf: a global income opportunity strategy and an India equity strategy.
«In terms of equities, US is our most preferred market, followed by Switzerland and selective markets within Europe. Within Asia, we are positive on India and Japan,» Laxminarayan added.
