SOVEREIGN wealth funds remain keen on China, despite regulatory actions, planning standalone investment strategies and piling into venture capital and real estate, according to data and analysts. Investors in China have been shaken in recent weeks by a slew of regulations targeting sectors ranging from gaming to education. Sovereign wealth funds are not immune but, given their long-term investment outlook, they are not expected to pull back from a bet that China will provide the engine of global growth for years to come. “Long-term investors like sovereign funds won’t adjust their allocation to the second-largest economy down to zero overnight,” said Winston Ma, former managing director of China Investment Corp., China’s own sovereign fund. “Their strategic asset allocation cannot be that tactical.” Norway’s fund, the world’s largest, has 4.5 percent of all investments on the Chinese mainland and in Hong Kong. Singapore’s Temasek Holdings in June bought 33 million American Depository Receipts in Didi Global Inc., before regulators announced a probe of the ride-hailing company. Several funds have positions in giant Alibaba Group Holding, whose shares are down 30 percent year-to-date, and New Oriental Education & Technology Group Inc., which has tumbled 88 percent. Chinese companies have been caught in a pincer this year, with increasing U.S. scrutiny on one side and a domestic regulatory move on the country’s massive internet sector. In a sign of recent wariness, sovereign funds pulled US$2.35 billion from onshore China A shares equity strategies managed by third-party fund managers in the second quarter, the most since at least 2017, showed eVestment data. But that may prove temporary. Several were considering setting up standalone exposure to China within equities and fixed income, said Elliot Hentov, head of policy research at State Street Global Advisors (SSGA). “The regulatory push has accelerated such considerations given that China policy is now running acyclically compared to other emerging market countries,” he said. Chinese equities should form a much larger chunk of global equity portfolios, potentially as much as 50 percent of the weighting in MSCI’s emerging market index once A shares are fully represented. Next month, China will be added to the FTSE World Government Bond Index, setting it up for potential inflows of some US$130 billion. Like other investors, sovereign funds have become used to political risks in China, with flare-ups between the United States and China weighing on equity markets in recent years. “We believe this [regulatory action] could be positive for sovereign funds investing in China,” said Rod Ringrow, Invesco’s head of official institutions. The regulatory move was being waged to build a prosperous economy, fight against monopolies and protect workers, Beijing-based Global Times said last week. There has also been a stepping up in deals within private markets, including property, specifically offices, logistics and rental housing, where China has been wooing capital to help provide accommodation. Sovereign funds closed 26 deals at a value of US$2.8 billion year-to-date, compared with US$4.9 billion via 28 deals across all of 2020, Global sovereign wealth fund (SWF) data showed. PitchBook data showed funds participated in a record 25 venture capital deals in China year to date. CBRE has already seen a more than threefold increase in property transaction volume from sovereign funds, reaching 10.6 billion yuan (US$1.6 billion) in 2020, up from 3 billion yuan in 2019. “We expect more SWFs to increase their allocation to China, riding on confidence in its mid-to-long term economic growth trends like continued urbanization and consumption growth,” said Greg Hyland, CBRE’s Asia Pacific head of capital markets. (SD-Agencies) | 