Nov 14, 2019

Deloitte: China could be a gold mine for asset managers

Dion Rabouin, author of Markets
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Adapted from Deloitte; Chart: Axios Visuals

The Chinese government is set to eliminate restrictions on foreign ownership of fund management firms in 2020, opening up major opportunities for U.S. and other global firms to capture potentially trillions of dollars in new assets, according to new research from Deloitte.

Why it matters: The Chinese government has been taking steps in recent years to liberalize its capital markets and attract investment.

  • If those efforts continue, and China's economic growth doesn't slow significantly, the country's public investments should more than double in the next four years, Deloitte's study finds.

What's happening: China is facing a retirement crisis, Deloitte analysts argue, and is looking to replicate many aspects of U.S. retirement accounts like IRAs and 401(k)s to help counter the "savings gap" in its state-run Basic Pension System for Enterprise Employees, which could be depleted by 2035.

  • "Chinese authorities appear to be looking to shift more responsibilities for securing retirement income to employers and individuals."

The big picture: Much of the money invested in China is handled by so-called mom and pop retail investors, and Deloitte estimates the total banking and investment assets they hold will reach $30.2 trillion by 2023.

The intrigue: The growth of Chinese public investment plans is very tied to China's GDP growth. Given the divergent possibilities in the next few years, analysts see the possible inflows to public funds diverging by literally trillions of dollars.

  • "In the 'extreme bear case' of 0% GDP growth, the forecast predicts that public fund AUM will decrease slightly, standing at $1.7 trillion in 2023," analysts write in the report.
  • On the other hand, if China’s GDP averages 6% growth through 2023, public fund AUM is expected to grow to $3.9 trillion.

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