CSI: China eyes state policy, ESG-linked investments

Bond investing is one of the major contributors to this trend on the back of the launch of a passive products last year, according to CSI. The SSE 10-year Local Government Bond ETF was the country’s second-largest passive bond fund when it was launched in October 2018.

JPMorgan Chase & Co. has announced that it will add Chinese government bonds to its widely tracked emerging market local currency bond index from February next year. The decision is widely expected to attract billions of dollars into the world’s third largest bond market.

Another area of interest among Chinese investors is state policy. Funds linked to the CSI Central-SoEs’ Structural Reform Index raised CNY54 billion (US$7.6 billion). The constituents of the index include A-share stocks that are actively making progress in business restructuring, technology innovation and international business development – all of which are areas where the Chinese government is heavily investing on.

This trend has transpired to the structured products market outside of China, as suggested by the partnership between Vontobel and China Construction Bank (CCB) to launch a strategic index certificate tied to the theme of Belt and Road Initiative in the second quarter. The note tracks the stock performances of companies that are likely to benefit most from China’s global infrastructure-building scheme.

We see growing awareness towards ESG from asset managers

ESG investing, on the other hand, is an up-and-coming investment sector, according to a CSI executive.

“We see growing awareness towards ESG from asset managers,” he said. “There are five passive ESG or ESG related funds in China, all of which are benchmarked to CSI indices, as of the end of the first quarter this year, and more ESG products are expected to debut in the future.”

SRP database shows that there are  42 live structured products linked to the Stoxx Europe ESG Leaders Select 30 EUR Index in China backing this trend. The sales volume of ESG-linked products sold in China stands at over US$800 million. HSBC Bank has marketed all these products.

Other assets gaining momentum recently in China relate to those eligible under the Hong Kong-Shanghai Stock Connect programme, which allows investors to trade securities in each other’s markets, as well as smart beta strategies, mainly focused on dividend and low volatility strategies.

The rise in market volatility this year has prompted wealth managers as well as retail investors worldwide to flock around low beta strategies, although the downside protection means underperformance in the event of a bull market.

CSI is one of the largest index providers for China’s structured products market. The China AMC CSI 300 Index ETF (HKD) and CSI Small-cap 500 were the two benchmarks that raised the largest sales volume among live products tracking either a single or a basket of indices in the country.