Nov 14, 2019

Deloitte: China could be a gold mine for asset managers

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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Axios

The threat of a U.S.-China "tech Cold War"

Ian Bremmer, president and founder of Eurasia Group, warned at the consulting firm's annual GZERO Summit in Tokyo Monday that a rising "tech Cold War" between China and the West poses "the greatest threat to globalization since the end of World War II."

What he's saying: "Beijing is building a separate system of Chinese technology — its own standards, infrastructure, and supply chains — to compete with the West," Bremmer said. "Make no mistake: This is the single most consequential geopolitical decision taken in the last three decades."

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Fund managers predict strong growth next year for emerging markets

Data: Investing.com; Chart: Axios Visuals

After years of U.S. outperformance, fund managers say they expect American assets to deliver gains in line with international markets in 2020.

The big picture: Firms including BlackRock, BofA and JPMorgan say they are particularly bullish on emerging market equities, which have been unloved in 2019.

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Courtenay Brown

Consumers are picking up the lagging business sector's slack

Reproduced from LPL Research; Note: "Other components" includes housing, inventories, trade and government spending; Chart: Axios Visuals

The narrative of the U.S. economy lately has been strong consumer spending as the cornerstone of growth, offsetting lackluster business investment.

Driving the news: Economists pared down estimates for Q4 GDP — prompted by worse-than-expected economic data on Friday. The downgrades would have been worse, if not for retail sales figures that pointed to a solid, but slightly more cautious, consumer.

Go deeperNov 18, 2019