Latin America-China Investment Guide - 67

CHINA
INVESTORS

As Latin American institutional investors and their regulators continue to mature, these entities are cautiously gauging entrances to Asia. By Andrew Short

Making an entrance

hina presents an interesting investment case for the compulsory pension funds
systems in Latin America, which boast roughly $900 billion in capital across Brazil, Mexico,
Chile, Colombia, Peru and Argentina.
"There is a huge amount of Latin American institutional investor interest in China as it has
emerged as a key driver over the global economy, and notwithstanding the recent decline in
the stock market," says Bev Hendry, co-head of the Americas at Aberdeen Asset Management.
That decline is more than a hiccup, however. Investors across the globe lured by rapid
growth in China are having their nerves sorely tested following a dramatic freefall in the stock
market and predictions that the Asian giant is facing its own financial crisis.
The Shanghai Composite Index lost close to 40% of its value between June and late August,
including some sharp intraday trading sessions. Authorities struggled to contain the rout, ordering on July 8 for some shareholders to stop selling stocks for six months. Yet in late August,
the index fell 8.5% in a single day, to 3,209 points.
Spurred by intensifying fears surrounding the health of China's market and economy in
the short-term, many investors have started heading for the exits. Others, however, say the
decline has created opportunity in the form of a cheaper entry point for long-term exposure
to the Asian consumption boom.
"None of this is a sign that that the China growth story is coming to an end, but rather
people had got ahead of themselves both in terms of the rosy picture they painted of the
economy and of the quality of the companies available," Hendry says.
Though he says noise over the stock market crash in China is having global reverberations,
Salvador Gómez, head of passive distribution for Latin America at Deutsche Bank also cautions against applying short-term reactions to long-term investments: "There are concerns at
the moment with the market in China. However, pension funds invest for the long term. We
should see investments pick up again from all regions of LatAm once the short-term noise has
calmed down. Pension funds are waiting for the market to calm," he says.
Setting an example
Chilean institutional investors, specifically private sector pension funds, have led regional
efforts to diversify into China. Chile's six administradoras de fondos de pensiones (AFPs)
invested more than $241 million into Chinese equity funds in April, according to the Chilean
pension regulator. The Robeco Chinese Equities fund and iShares China Large Cap ETF attracted the majority of that money.
Despite the short history of LatAm portfolio investment into China, regional funds have al-

ready played a part in the China investment
story, says Alejandro Perez, head of China
origination, banking and capital financing,
Americas, at HSBC.
"Many funds in the region acquire investment products that are either domiciled,
distributed or give exposure to Hong Kong,"
Perez says, pointing to the territory as the
pivot to the relatively new, two-way equity
investment channel known as the ShanghaiHong Kong connect.
Limited local investment opportunities
and a high cap on foreign investments have
spurred Chilean AFPs to diversify internationally. These entities, which can invest
up to 80% of their capital outside of Chile,
represent the most sophisticated market in
the region, according to a report published
by Boston-based consultancy Cerulli Associates, which also highlights the country's
simple and clear pension fund regulation.
Chile will continue to dominate crossborder allocation accounting for as much
as $121 billion, or 50%, of LatAm pension
funds by 2019, the Cerulli report says. With
large amounts of investments in Chile currently being placed in emerging markets,
specifically Asia, China will certainly receive a large chunk of this money.
Gateway
The relationship between Chile and China
has been maturing for some time and was
initially conceived to leverage Chile's mining sector and abundant natural resources.
A number of recent bilateral agreements
between the two countries are helping to
strengthen and broaden these ties, says
Martin Maciak, head of renminbi internalization and Asia origination for banking and
capital financing Americas at HSBC.

September/October 2015 - L ATINFINA NCE.COM 67

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