FOREIGN INVESTMENT that
FOREIGN INVESTMENT that are incorporated in China, listed on either the Shanghai or the Shenzhen stock exchanges and trade in RMB3. H-shares are incorporated in China but trade on the Hong Kong Stock Exchange in HKD4. Before 2003, A-shares were completely off limits to foreign investors, who were restricted to H-shares if they wanted to get Chinese exposure. Over the last few years there have been several changes to the benefit of investors seeking exposure to mainland China: • Firstly, the government relaxed regulations to make foreign ownership of A-shares less restrictive. Foreign ownership is still limited to 30% of a company’s shares, but restrictions on moving capital in and out of China have been relaxed. • Secondly, access to A-shares listed in Shanghai or Shenzhen can now be traded directly via brokers based in the city of Hong Kong. • Lastly, the MSCI5 started slowly including A-shares in its indices. This means that passive funds will need to start investing in A-shares in their aim of replicating the index. The obvious benefit of the Chinese mainland market opening up is the sheer range of opportunities available to investors. There are almost 3 400 A-shares trading on Chinese exchanges, in comparison to around 900 H-shares that foreign investors traditionally had access to before. A-shares are also diversified over a broader range of business sectors, whereas H-shares are dominated by technology stocks like Tencent, which South African investors already have access to through Naspers. Property rights A risk that investors still worry about is that China remains a socialist state and that property rights aren’t protected. The argument that is used against this concern is that the Chinese government realises the need to open up their markets to foreign investment and that they are committed to becoming a global investment destination. As a result, the likelihood of foreign property being nationalised is low. These commitments can only be taken at face value and will depend on investors’ confidence that their property isn’t more at risk in China than it is in Brazil or Russia. China is expected to generate over 35% of total global growth over the next few years. The country has an enormous population, which is increasingly participating in the economy, becoming richer and more educated in the process. Arguably, the country is now on a more sustainable growth trajectory that is supported by stronger domestic consumption and highvalue manufacturing, in contrast to the export-led low-margin manufacturing they Ian Jones, CEO, Fundhouse were dependent on before. The market is opening up to foreign investment which should facilitate a more efficient investment environment going forward. There are country-specific risks that investors have to consider, as with all foreign investments. But, in terms of China growing as a global investment destination, my money is on red. 1. Gross domestic product, which is a measure of the value all the goods and services produced in a country in a year 2. Per person 3. Renmimbi is the Chinese currency 4. Hong Kong Dollar 5. MSCI creates global investable indices to benchmark performance against 26 www.bluechipjournal.co.za
ESG Setting a precedent Shareholder activism on climate change and other ESG risks is starting to gather steam, says Jon Duncan. South Africa recently saw its first-ever climate-risk-related resolutions tabled at a listed company AGM, when Standard Bank Annual General Meeting (AGM) allowed a resolution calling on the bank to prepare a report on its exposure to climate risk in its lending, financing and investment activities, as well as a second resolution calling on the company to adopt and publicly disclose a coal power and mining lending policy. These resolutions are a significant step forward in local shareholder activism on climate change. While the majority of shareholders voted against the first resolution (62%), the second resolution received the support of 55% of the shareholders and is therefore binding on the company. The move may have set a new precedent and the industry can expect to see more shareholder resolutions and activism of this kind this year, as well as on other environmental, social and governance (ESG) related issues. The Standard Bank resolutions indicate that ESG issues will increasingly be showing up on the corporate agenda. The fact that climate risks were raised at a large corporate’s AGM shows that stakeholders and shareholders alike recognise that the risk associated with transitioning business models to align with a two-degree Celsius future are material. Jon Duncan, Head of Responsible Investment at Old Mutual Investment Group More than 800 000 homes powered by renewable energy. Reducing total carbon emissions by 3 052 638 tons (equal to greenhouse gases from 587 963 cars driven for a year). WHO DO YOUR INVESTMENT DECISIONS ENRICH? Our investors want their investments to do well and do good. That’s why we incorporate environmental, social and governance factors into all our investment and ownership decisions. And why we have committed over R122bn of our clients’ capital to sustainable investments that generate long-term returns, while solving some of society’s biggest challenges. Invest for a future that matters. Read more at oldmutualinvest.com INVESTMENT GROUP DO GREAT THINGS EVERY DAY 119939L The following entities are licensed Financial Services Providers (FSPs) within Old Mutual Investment Group (Pty) Ltd Holdings approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide advisory and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. These entities are wholly owned subsidiaries of Old Mutual Investment Group Holdings (Pty) Ltd and are members of the Old Mutual Investment Group. Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07), FSP No:604. | Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07), FSP No:45255. | African Infrastructure Investment Managers (Pty) Ltd (Reg No 2005/028675/07), FSP No:4307. | Futuregrowth Asset Management (Pty) Ltd (Reg No 1996/18222/07), FSP No:520. Figures as at 31 December 2018 unless otherwise stated. Sources: Old Mutual Alternative Investments; African Infrastructure Investment Managers (AIIM); Old Mutual Specialised Finance; Futuregrowth Asset Management.
