The amount of non-financial direct investment made by China’s domestic investors to overseas enterprise recorded 1,129.92 billion yuan in 2016, up by 44.1 percent year on year; while the amount of foreign direct investment (FDI) posted 55.86 billion yuan in December of last year, down by 39.4 percent from a year earlier, according to data released by the Ministry of Commerce on Jan. 16. It can be easily found from the data that overseas investment for the whole year of 2016 saw rapid growth but slowed down significantly in December.
Overseas investment restricted by policies
As to the reason, a market participant explained that “we didn’t make it in some projects as regulators put more restriction on quota of overseas investment, correlation with principal business and leverage ratio.” Journalist from the 21st Century Business Herald realized that regulators frequently expressed their opinions on overseas investment recently.
Four ministries and commissions declared twice in November and December of 2016 that they would strictly review cross-border investment deal and curb and warn irrational overseas investment such as large amount of investment on non-principal business in real estate, hotel and entertainment industries and overseas investment made by limited partnerships, etc.
China Insurance Regulatory Commission (CIRC) convened a meeting on Dec. 12, 2016, focusing on cross-border mergers and acquisitions of insurance companies and aggressive investment by buying shares to the five percent limit through secondary market acquisition. On Dec. 28, China’s central bank adjusted the reported amount of yuan-denominated cash transaction to 50,000 yuan and the reported amount of yuan-denominated cross-border transaction to 200,000 yuan.
Mainland China will tighten supervision on overseas investment in near future. Price Waterhouse Coopers (PWC) recently pointed out in a report that owing to many factors, overseas mergers and acquisitions of Chinese enterprises in 2017 will be less active than that in 2016 but is likely to hit new high in 2018. There are still factors driving Chinese enterprises to make outbound investment in the medium and long run.
Investment situation at home and abroad turns better
Recently, many institutions released outlook into outbound investment for 2017. By comparison, the journalist found that although these institutions have different investment preference and strategy, many of them are rosy about overseas investment market in spite of increasing certainties.
Wealth management department of Standard Chartered Bank (SCB) thought that the US presidential election gave rise to drastic change in financial market, so 2017 will be a key year. The department also predicted that global economic growth will be more robust this year, which will be the second time for global economic development speeding up since 2009. In terms of overseas macro-economy, the SCB was most optimistic about the US. Besides the US, it believed that there is potential for Japanese policy to loose further. While regarding emerging markets, the SCB viewed that Asia market will do the best.
But some market analysts pointed out that although overseas macro-economy and return on investment recover, domestic investors don’t need to be too panic after purchase restriction policy is implemented. There are also a variety of investment products available in China.
Huang Guobin, CEO of China Investment Bank Department of JP Morgan, said that JP Morgan will attach importance to “new investment stories in China” and new enterprises in 2017. Stocks related to Internet and stocks of logistics, fintech, robot, new energy, big health and big health care which are related with new economy are possibly to show outstanding performance. And the growth potential of many “new investment stories in China” is undisputed. JP Morgan will recommend these projects to more investors and hopes to see more new Chinese-style enterprises go public in 2017.
US stocks and Asian bonds popular
As for overseas investment opportunity in 2017, investment institutions are widely rosy about the US stock market.
UBS indicated in an outlook into 2017 that legislation, tax reduction and reducing supervision are favorable to US stocks and predicted that earnings of US stocks will grow by 8 percent this year. Although the US stocks saw higher growth in last year, Legg Mason Global Asset Management still believed that the US stock market will be leading in the world this year.
Zeng Shaoke, business executive in China and Hong Kong regions of Legg Mason, stated that the following concept stocks may be influenced by Trump’s policy. First of all, if tax reform is implemented in the US, consumption will gain most benefits in the country; secondly, investment in national defense, infrastructure and new energy will increases; thirdly, interest rate in financial industry is expected to hike.
Besides rosy about the US stocks, UBS also believed that currencies of emerging markets will continue to show good performance in 2017. Relevant persons pointed out that though political uncertainties may bring uncertainties to emerging markets in the near future, environment with low income provides favorable support and valuation of currencies such as Brazilian real, Indian rupee, Russia ruble and South African rand are quite attractive.
SCB argued that with interest rate hike and steady economic environment, the US dollar will be continuously strengthening in 2017. Investors can mainly hold positions in US dollars and Australian dollar, Canadian dollar and other merchandise money may be good chance for investment. It is widely predicted by institutions and industrial analysts that US dollar-denominated bonds will be relatively negative with interest rate hike in US dollar, but on the other hand, they see bonds of Asian countries promising.
Sun Yingmei, investment portfolio manager of Western Asset Management, expressed that she is rosy about Asian bonds and especially US dollar-denominated bonds, which provide rather attractive interest rates to the US and Europe and enjoy stable prices. Sun looked forward to the future performance of bonds of Korea, India and Indonesia.
Translated by Vanessa
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