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Dong Shaopeng: US pension fund backs A-share investment

2019-11-15

Source: Global Times    Published: 2019-11-14


A US federal retirement fund has decided to stick to its original plan of investing in the Chinese mainland's A-share markets despite fierce opposition from some US senators amid the two countries' prolonged trade row.


The decision reflects the unstoppable torrent of international investors, including those from the US, to hunt for profits in the thriving Chinese markets, experts said on Thursday.


The Federal Retirement Thrift Investment Board (FRTIB), a pension fund for US federal workers, on Wednesday affirmed its move to track a popular index provided by global index provider MSCI Inc for one of its retirement funds, Reuters reported.


About 7.5 percent of the index, namely the MSCI ACWI ex-US IMI Index, is made up of mainland-listed companies, according to a statement sent by the MSCI to the Global Times on Thursday. The index mostly tracks stocks listed in Japan.


MSCI didn't comment on the FRTIB matter as of press time when contacted by the Global Times.


The FRTIB has made the decision amid heightened trade tensions between US and China and intensified scrutiny on US capital that flowed to the mainland markets.


According to another Reuters report on October 23, the fund has faced pressure from a group of US senators who earlier asked the FRTIB to reverse its plan to track the A share-embracing MSCI index, saying that such behavior would lead to US pension savings being funneled to companies controlled by the Chinese government.


Political opposition faced by FRTIB is one example of the US government's efforts to interrupt interaction between the world's two largest capital markets, as it weighs restrictions on US capital flows into China.


"The US politicians have been continuously and neurotically telling the public and investors about the so-called 'investment risks' in China. I think they should let the market decide when it comes to investment," Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Thursday.


However, the fact that the FRTIB and other US financial institutions have bucked political pressure to back the mainland capital markets is proof of A shares' unique investment value, experts said.


"Investors who are farsighted and have an analytical mind will pay close attention to the A-share markets, which are backed by rapidly growing Chinese industries ranging from manufacturing and consumption to healthcare. They know that such fast development will bring them dividends," Dong said.


He also said that the relatively low valuations on the A-share markets, following a nosedive in mid-2015, mean it is a good time for overseas capital to flow in.


"They are swimming with the tide, not against it," he said.


In a letter to those senators, the FRTIB said that investing in emerging market stocks was in line with almost all other public and private pension plans because stocks in emerging markets have outperformed those in developed markets in recent years, Reuters reported.


MSCI CEO Henry Fernandez also said last month that limiting capital flows to China would have a "devastating impact on global markets."


Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times that it's standard practice for retirement funds to diversify their investment portfolios and invest in different stock markets in the world.


"For emerging markets especially, their aggregate economic scale still lags behind developed markets but they lead in development speed. This leads to projections that their stock markets will have larger space to gain, compared with those in developed markets," Xi said.


In a report sent by UBS to the Global Times on Thursday, it forecast that the stimulus policies rolled out by China, India, Indonesia and the Philippines will substantially back the economic growth in those countries in 2020.


The FRTIB couldn't be reached for comment.


Dong Shaopeng is senior fellow of Chongyang Institute for Financial Studies at Renmin University of China.

Key Words: Investment   US   RDCY   Dong Shaopeng  

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