ETF distribution and education firm NTree International, has hired a China expert, Brendan Mueller (pictured), as Head of Greater China to help develop its business in the region.
Fluent in Mandarin, NTree reports that Mueller is the first foreigner to work at a Chinese futures exchange, the only foreigner globally to have worked at two Chinese futures exchanges, and has over 10 years of experience in China’s financial markets spanning FICC asset classes.
NTree has recently conducted research with 150 European institutional investors and wealth managers representing a combined AUM of USD292.8 billion, which revealed that 75 per cent expected foreign investment into Chinese equities to increase and 63 per cent expected increased investment into China’s fixed income market.
In terms of ETFs, Tim Harvey, CEO of NTree comments that in 2018, the world’s largest ETF issuance happened in China, with GBP5 billion of seed money from Chinese pension funds invested into an index based on state-owned enterprises in China. At the time, the Department of Equity Management said: “The Central SOE Structural Reform ETF has set up the bellwether of the central SOEs’ structural reform in the capital market and provided a convenient channel for the social capital’s investment in the central SOEs’ reform.”
Mueller says: “We do see a need to build a bridge between the European investor and the Chinese asset manager. Connecting the Chinese asset manager with the European investor is at the core of what we will build out here.”
NTree plans to help Chinese fund managers launching products in Europe, with distribution and education, but also advising European institutions how they can invest in China and what opportunities are available.
“What gives NTree the edge is that we know the landscape in Europe quite well so when we are talking to local managers building out their European business, we can advise on how they can engage and compete,” Mueller says.
Recent China index inclusions have created more of an opportunity for Chinese asset managers, Mueller says. “They have the local investment advantage but have been somewhat hesitant. Now with index inclusions, the real opportunity begins, but they will have to compete with the western investment houses.”
NTree has seen the commodities business in China growing significantly, and believes that going forward key investment themes emanating from China will be the Chinese consumer and healthcare, including biotech.
“There is a growing ETF business in China,” Mueller says. “Both institutional and retail investors in China use the ETF structure and, with China out of the epidemic for over a year, we are seeing more ETF roadshows, building the business out locally.”
Mueller also notes that ESG has been widely supported in China, with ESG and ethical screens on portfolios widely implemented. A locally-based investment team running an offshore China A-share fund which incorporates ESG principles in the investment process has returned 17.7 per cent a year since 2005.
“The active community here has been running their own take on ESG for quite some time,” Mueller says. “It’s not a brand-new phenomenon.”
“Thirty years ago, tourists from Taiwan would travel to New Zealand and see a green lush land and ask ‘why does my home not look like this?’ It forced governments to make environmental change as the Chinese want to live in clean, health and safe environments too,” says Harvey.
Mueller says that one of the tenets of the latest Chinese five-year plan is a new people centricity, including cleaning up the environment, with a visible investment in greening public spaces and improving public health.
2021 saw the National People’s Congress (NPC) of China formalise the outline for the 14th five-year plan and long-term targets for 2035, which included setting an 18 per cent reduction target for CO2 intensity and 13.5 per cent reduction target for ‘energy intensity’ from 2021 to 2025.
Mueller comments: “The internet has been a big theme in China, but it has been there a long time and investors have already allocated to the mega cap technology names, especially as they are coming in to Hong Kong and Hong Kong has that special competitive advantage with access to local capital via the stock connects.”
The western asset manager coming to China will be able to pick up on the China consumer theme going forward, Mueller believes. “Part of the 14th five-year plan is that China’s economic activity will be driven by Chinese consumer tastes and demand from domestic business” Mueller says.
“It was largely driven by external demand before, by what the American consumer wanted, and that will change now so that the Chinese consumer will be at the core of the economy here.”
Mueller offers the local insight that, three to four years ago, an affluent consumer in China contemplating an EV purchase would have been buying a Tesla but now there is a wide range of premium electric vehicles emerging from China’s own automotive industry.
“I can string that into how Chinese business operates in general,” Mueller says. “When they see an opportunity, they move very quickly. The transition is: “We are going to get this out right now and be market driven, rather than taking a phased approach. Globally, Tesla’s competition will come from Chinese automobile makers.”
Harvey comments that even visiting in Shanghai in 2019, he noted that at least a quarter of the cars were electric vehicles.
“China runs innovation,” he says. “We see it in the demographics of the students as most students on the science, technology, engineering and maths (STEM) courses are Chinese.”