Investors should include exposure to China in their asset allocation of portfolios, as the country accelerates the opening of its capital markets, according to the Bank of Singapore (BoS).
This comes as global fund management firms recently received approval to set up China units to tap the estimated RMB17.7 trillion domestic mutual fund market.
In May, Chinese regulators scrapped the Qualified Foreign Institutional Investor (QFII) scheme and the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme.
Both schemes will be replaced by a merged version in November.
This is in addition to a slew of measures – that will also be announced in November – to simplify processes, clarify regulatory implementation and include more asset types.
“China investments (currency, equities, bonds and private market assets) will be an important source of return and diversification, due to the nature of China’s growth and its rising importance in global benchmark equity and bond indices for global institutional investors,” Jean Chia, BoS’s head of portfolio management and research office, writes in a note dated Oct 12.
According to BoS, investors should increase exposure to sectors that will benefit from China's “Dual Circulation” strategy.
This refers to the country’s aim to rely on domestic demand as the main driver of growth, supported by a network of domestic and international circulations that complement each other.
Specifically, China will focus on next-generation infrastructure for digitalisation and intelligent ecosystems in public and private sectors.
BoS says the potential beneficiary sectors are data centres, artificial intelligence, 5G applications, the internet of things, and environmental infrastructure such as electric vehicle charging piles and ultra-high voltage power transmission projects.
