The attractiveness of Chinese equities should not overshadow the critical need for investors to adopt global diversification in their portfolios, an independent financial advisory organisation has warned.
Nigel Green, CEO of the deVere Group, said that investors will “pile into Chinese equities” in 2021 after the CSI 300 index grew by 27% last year.
The stock market index also closed at a 13-year high on Tuesday, and this trend is expected to continue as China fares better than other large countries in controlling COVID-19.
Green said that fund managers who seek opportunities in China, while maintaining diversified portfolios across geographical regions, assets classes, sectors and currencies, will reap the rewards this year.
“China’s already impressive economic recovery is likely to pick up momentum and this will be extremely attractive,” he continued. “China, but also Asia in general, has massive potential and will likely outperform the rest of the world in 2021.
“But as 2020 showed us, with perhaps too much clarity, things can change quickly, and so-called ‘certainties’ can shift overnight. Investors must not get giddy and forget about the importance of diversification – the investor’s best tool to capitalise on opportunities and mitigate risks.”
The advice comes after Willis Towers Watson (WTW) last year suggested that institutional investors should consider greater allocations to China to benefit from long-term opportunities and help manage risk.
Foreign ownership of Chinese onshore assets is currently low, largely because capital markets have historically been difficult for outside investors to access.
Average allocations to China are about 5% of growth portfolios, but WTW said that investors should grow these to as much as 20% over the next 10 years as they provide diversification benefits and attractive alpha opportunities.
The firm explained how trends towards decoupling, and the unravelling of globalisation, are increasing the importance of China as an investment destination.
“Ongoing US-China tensions, the movement towards de-globalisation, and continuing fallout from the coronavirus pandemic are all to some extent deterring investors from allocating to China,” said Liang Yin, director in WTW’s investments research team and China specialist.
“However, for global investors who have a long-time horizon, rather than weaken the case, these factors actually reinforce the need to own more Chinese assets to make their portfolios more resilient in a changing and uncertain world.”
Image credit: iStock
Author: Chris Seekings