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Hedge Fund Industry Sees Lacking Transparency as Biggest Concern for Investing in China

ByBritt Tunick

November, 2015 –There is growing uncertainty in the markets when it comes to investing in Asia, particularly in China –where issues such as slowing growth, a devaluation of the currency and a poorly executed stock market bailout have led to skepticism among investors. Given such issues and Asia’s importance in worldwide markets, The New York Hedge Fund Roundtable recently surveyed its members about how the recent volatility in China impacts Asia’s investment opportunities.

When it comes to investing in China, the majority of Roundtable members believe the biggest challenge investors face is the overall lack of transparency regarding the accounting of Chinese companies. Nonetheless, most Roundtable members think such concerns have done little to deter investments in China and have merely made investors more cautious about which stocks they put their money into.

“While it is clear that there are some serious factors investors need to consider when investing in China, even amidst slowing growth the country remains a major factor in world markets. So it is not surprising that investments in the country have merely slowed up a bit as investors become a bit more cautious,” said Timothy P. Selby, President of the New York Hedge Fund Roundtable.

New York Hedge Fund Roundtable members had the opportunity to weigh in on Asia’s investment opportunities at the Roundtable’s October meeting, as well as through an online electronic poll.

*Of the respondents to this survey, 15% were fund managers; 13% were allocators; 8% were risk management or trading; 60% were service providers and 4% were other industry participants.

 

Following are some of the key findings of that survey:

  • Only 17% of respondents believe the Chinese economy has already reached its bottom, while 83% of respondents think China’s economy is likely to head lower.
  • When asked how skeptical U.S. money is about investing in China, 49% of respondents believe that uncertainty about government intervention in China and the country’s currency has merely made investors more cautious about which stocks they are putting their money behind; 39% of respondents think that U.S. investors are watching the situation closely, but are not willing to completely pare back their Asian exposure; and 12% think the belief that China’s market is a forecaster for the rest of Asia and, as such, investors have begun shying away from Asian stocks as a whole.
  • Asked what the biggest challenges are when it comes to investing in China, 59% of respondents identified the overall lack of transparency regarding the accounting of Chinese companies; 22% cited the fact that China’s market is not immune from government intervention;10% believe it is restrictions on short selling; and 9% believe it is the realization that China’s policy makers do not know how to address the country’s challenges.
  • 54% of respondents believe commodities in China are experiencing a cyclical decline, while 46% believe the decline is secular.
  • When asked to identify where the best investment opportunities are in China at the moment, 56% of respondents chose service sectors such as those catering to the food industry, healthcare and environmental services; 17% think it is Chinese insurance companies, which are poised to benefit from the inevitable decline in the country’s interest rates; 14.5% think the best opportunities lie in shorting of the renminbi, China’s currency, which is more than likely to be devalued sometime within the next 12 months; and 12.5% think long-term investments in China’s real estate market are most appealing.
  • Asked what role India will play in the overall Asian investment opportunity, given rising investment activity in the country’s technology industry and startups, 54% of respondents think that Internet-based businesses such as Google and Facebook that are seeking a greater foothold in Asia will shift their focus from China to India –which currently represents the world’s fastest growing economy, yet still have roughly 1 billion people that have yet to move online; 46% believe that, despite India’s growth potential, issues such as the country’s regulation of the Internet, its outdated mobile data network and the large number of non-English speakers will keep investors from embracing investments in the country.

 

October’s “bonus” question: Roundtable members were asked whether they believe Los Angeles Dodger Chase Utley’s slide into Mets shortstop Ruben Tejada was clean.

Of the 75% of respondents who indicated that they were Mets fans, 75% believe the slide was not clean, while 25% think it was.

Of the 25% of respondents who said they were not Mets fans, 62.5% do not think the slide was clean, while 37.5% think it was.

 

About The New York Hedge Fund Roundtable:

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers. Monthly events center around thought-provoking speakers and panels designed to keep members apprised of timely and important issues within the alternative investment industry. The Roundtable’s goal is to provide a forum for thought leadership, where industry professional have the opportunity to enhance their knowledge and skills and to network with other individuals committed to advancing the industry with the highest ethical standards. For additional information about the Roundtable, visit: http://www.nyhfr.org