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Feature Q1 2022

Foreign Investors Eye China Opportunities

With Angely Yip, Senior Sales Manager, Chinese Financial Institutions, BNP Paribas Securities Services

BNP Paribas was granted the China Qualified Foreign Institutional Investor (QFI) custodian bank license in August 2021. What progress has been made since then, in terms of institutional investors accessing China’s equities and bond markets?

 The QFI license is important to BNP Paribas as it demonstrates the Group’s commitment to and focus on Asia, which has been a key strategy for many years. BNP Paribas has been providing clients direct access to China, through our Hong Kong branch into Bond Connect and Stock Connect since the programs were rolled out to the market. We’re also one of the early providers in China on the China Interbank Bond Market (CIBM Direct). The award of this QFI local custody license is the latest addition to our China Access programs. We are now the largest global custodian in Europe providing the full range of China investment programs to investors. 

Angely Yip, BNP Paribas Securities Services

 Our strategy is two-fold to build our services to support the investment corridors into and from Asia Pacific (APAC). First, we continue to expand our business capabilities across the region. China is a very important investment market for many of our clients, and as such, we will continue to enhance our direct market access for our clients. 

 Second, we are effectively delivering our Asian services to our global network. Establishing an Asian desk in Europe will provide the best support to clients who want to access Asia. We also provide market education about the opportunities in the region and the regulatory considerations, and we’re making a big effort on that front. The topic of investing in China is not new, but investors are keen to learn about the latest and often rapidly changing market developments, the impact on their portfolios, how to access and benefit from the different programs, and other tangible considerations. Hence, being able to support our clients on the ground in Asia, Europe and the Americas is quite important. 

 BNP Paribas’ substantial growth is a result of our deep understanding of the local markets and client needs. As a global organisation, we not only bridge cultural differences, but our close coordination with different locations allows us to strategically deploy our global market experts to optimise clients’ experience. Our clients appreciate our ‘one-stop-shop’ support, because when they ask us about QFI for example, it usually involves other interconnected topics such as trading or the overall economic environment and our experts are able to cover these topics. 

How has COVID-19 affected the situation?

 Throughout the COVID-19 pandemic, travel restrictions across the region have significantly affected clients’ development plans. It is difficult to say when travel will return completely but our clients are feeling the impact of the current restrictions. This is where we have been able to step in with insights from our on-the-ground teams.

 We are working closely with clients to identify additional ways to help them be successful with their business objectives and overcome the challenges brought by the pandemic. We help clients fill information gaps, for example by helping clients better understand the economic and investment outlook as well as the practical implications of China’s policies. We can be the eyes and ears of clients, supporting and guiding them through the different phases of the investment process.

What is the state of readiness of buy side firms to access China now compared with six months ago? What questions are the buy side asking?

We see much stronger momentum now compared with six months ago. At our most recent China Access webinar, part of our global client insights series, we provided first-hand information about China and its investment outlook to our clients. We received a lot of feedback from buy-side and sell-side firms, as well as alternative funds. Clients really want to hear about what’s happening in China and they are active participants in our webinars. 

Investors are keen to capture new investment opportunities, but of course, there are concerns about the unknowns and risks, and these concerns cannot be addressed by just reading the news. Again, this is where we can help, by providing insight about the market, as well as information about investment and settlement processes through our on-the-ground support. This helps boost the client’s confidence about getting into the market. 

In terms of asset classes, we’re seeing strong interest in both equities and fixed income markets. There’s never a perfect time to enter a market, but there are always opportunities, and we can help identify those opportunities. 

How is China evolving in terms of becoming more attractive and accessible for institutional investors? 

Over the past few months, China has opened further to include more instruments under the QFI program. From discussions with our clients, several are planning to use the QFI program to buy into local funds in China. This is the first time investors are allowed to invest into China’s local fund officially through QFI. 

 There are also discussions in the market that commodity futures will soon be allowed to trade under the QFI program. So right now, the widening range of investable assets available via the QFI program is very interesting to investors. It is also the first time Chinese regulators have allowed hedge fund clients to apply for the QFI license. 

How will the QFI license demonstrate value as a long-term differentiator for a sell-side firm?

 QFI is a long-term opportunity, which entails a long-term investment in, and commitment to, China. As China opens up step-by-step, it is a great opportunity for sell-side firms to build their capabilities to support the widening range of investable assets under QFI, directly or wrapping into other structured products.

A sell-side firm with the QFI license must be able to meet clients’ day-to-day needs in China, such as asset allocation and security selection, trade execution and settlement, and product development. More broadly, it’s critical for a sell-side firm to map out and implement a viable business strategy that will position it as a go-to partner of the buy side for the opening and development of China’s markets, which we believe represents a generational opportunity. •

For more information on the BNP Paribas’ China Access programs, you can contact Angely Yip at [email protected]

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