Headquartered in Hong Kong, CSOP facilitates foreign investment into China’s capital market. Founded in 2008, CSOP was the first Chinese asset manager granted the privilege of operating outside of the Mainland and is currently the world’s largest RQFII quota manager. With decades of experience in emerging Asia, the company’s nearly 70 employees work tirelessly to research and share their hard-fought insights through daily and weekly market commentary, webinars, and seminars.
Why Invest in China?
In only four decades, China has emerged to become the world’s second largest equity market and third largest bond market.1 With a targeted economic growth rate of 6.5% for 2017, the country’s ascendance is expected to continue into the coming decades.2 As China transitions into a developed economy, trillions of institutional dollars are projected to flow into the country’s markets. For now, though, China remains under-allocated in US investors’ ETF portfolios. According to Bloomberg data, China is the 18th most commonly-held country in investor portfolios– despite the fact that it is the world’s second largest economy.
Thus, to be properly diversified on the global level, we suggest that investors increase their holdings, allocating roughly 12% of assets to China. The current under-weighing suggests a buying opportunity.
China's Market Idiosyncrasies
Buying China is not easy, however. China has a unique market and regulatory structure that is often misunderstood by global investors. A few of these idiosyncrasies include:
1. Multiple share classes for different investor types: A-, B-, H-, N-, L-Shares; P- and Red Chips; ADRs
2. Different ways to access shares: RQFII, QFII, and Stock Connect schemes
3. Two bond markets: Exchange-traded and Interbank
4. Two stock markets: Shanghai and Shenzhen
5. Two currencies: CNY and CNH
6. Regulatory overlap: Banking, Securities, and Insurance Regulatory Commissions; People’s Bank of China and Ministry of Finance; State Administration for Foreign Exchange, State Asset Supervision and Administration Commission of China, and Asset Management Association of China are but a few of China’s many overlapping regulatory bodies. This convolution makes it difficult to understand which rules to follow. A diagram of China’s regulatory structure can be found here.
CSOP’s Competitive Advantage
1. First Offshore Chinese Asset Manager
CSOP was the first asset manager to capitalize on the market need for an offshore entity to safely guide international investors into China. CSOP has maintained this first-mover advantage and remains one of the world’s largest offshore Chinese asset managers by AUM.3
2. World’s Largest Renminbi Qualified Foreign Institutional Investor (RQFII) Quota Holder4
China’s regulators recognized and rewarded CSOP’s innovative vision. After the RQFII program was launched in 2011, CSOP was granted the largest quota allocation, serving as a key facilitator of international investment into Mainland China.
3. Dominant in ETFs
CSOP quickly and effectively leveraged this quota allocation, pioneering the development of currency-hedged and smart beta ETFs.
4. Resource-Rich Network
CSOP’s lineage affords unmatched access to the latest on-the-ground news and analysis of Mainland market conditions. CSOP’s parent company, China Southern Asset Management, is one of the largest asset managers in China. Likewise, CSOP’s grandparent company, Huatai Securities, is one of the largest securities firms in China.
5. Political Wherewithal
CSOP’s CEO Ms. Ding Chen is a board/committee member for 15 regulatory tribunals and industry associations in both China and Hong Kong. She is also the founder and chairwoman of the Chinese Asset Management Association of Hong Kong, an organization dedicated to developing an investment climate that suits the needs of offshore market participants.
1. Hong Kong Securities and Futures Commission (SFC)
2. Report on the Work of the Government, Ministry of Commerce of the People’s Republic of China, 2017
3. Bloomberg data compilation
4. State Administration of Foreign Exchange (SAFE)