Exploring China’s Onshore Markets with RCM Alternatives Pt. 2: Four Pathways to China’s Markets

March 19, 2024 rcm-alternatives 0 comment  Like
China and Asia

China’s financial markets offer a unique blend of opportunities and challenges, making them a focal point for global investors seeking diversification and growth. In the latest installment of the series ‘Exploring China’s Onshore Markets with RCM Alternatives,’ Matthew Bradbard, Managing Director at RCM China, sits down with Alvin Fan, CEO of OP Investment Management (OPIM), to discuss innovative strategies for offshore investors looking to tap into the burgeoning Chinese markets. This conversation, part two in a series, sheds light on the complexities and opportunities in accessing China’s dynamic investment landscape. 

(Incase you missed it, check out Part 1:Uncovering China’s Commodity Cornucopia, here!)

The Four Pathways to China’s Markets

Bradbard outlines four primary methods for offshore investors to penetrate China’s markets, emphasizing that “access is key” to unlocking potential returns. These methods include total return swaps, the newly reformed QFII (Qualified Foreign Institutional Investor) scheme, WFOE (Wholly Foreign-Owned Enterprise), and internationalized markets.

-Total Return Swaps: Initially costly, with fees reaching 700-800 basis points, swaps have become more accessible, now available for as low as 20 basis points. However, challenges still need to be addressed regarding execution smoothness and operational flexibility.

-QFII Scheme: Recent regulatory changes have made QFII a more attractive option, allowing foreign investors to access a broader range of commodities and hedge fund strategies within China. This scheme offers a more straightforward, streamlined path for global investors to dive into Chinese markets.

-WFOE (Wholly Foreign-Owned Enterprise): Establishing a WFOE offers direct market access but comes with its share of corporate and regulatory complexities, which have only increased over time.

-Internationalized Markets: While providing an avenue for global investors, the limited number of available liquid markets restricts the scalability and diversity of investment strategies.

Navigating Regulatory and Execution Challenges

The discussion also covers the nuances of regulatory compliance and execution efficiency when dealing with offshore partners. Bradbard and Fan explore the implications of these challenges for cost, execution quality, and overall investment strategy effectiveness.

The Future of Investment in China

Looking ahead, Bradbard is optimistic about the role of the QFII scheme in revolutionizing access to Chinese markets for global investors. With an eye on expanding RCM’s footprint and leveraging OPIM’s platform, they aim to facilitate the entry of Western capital into China, capitalizing on non-correlated, high-potential investment opportunities.

The Importance of Due Diligence

The conversation delves into the critical role of due diligence in identifying and vetting Chinese fund managers. With thousands of registered hedge funds in China, discovering top-tier talent requires a rigorous and systematic approach to ensure alignment with investor objectives and risk tolerance.

Building a Diversified Portfolio

Bradbard emphasizes the strategic advantage of constructing a diversified portfolio of Chinese investments. By combining non-correlated strategies across different sectors and trading styles, investors can enhance their chances of success in China’s volatile yet rewarding markets. 

Discover More About China’s Investment Opportunities by Watching “Four pathways to China’s Markets” Now:

 

For offshore investors intrigued by the prospect of accessing China’s markets, this episode offers a wealth of insights into navigating the complexities and capitalizing on the opportunities. With RCM Alternatives and OPIM at the forefront of bridging Western investors with China’s investment landscape, the future looks promising for those ready to explore this dynamic market.

Up Next

The upcoming installment of our series, ‘Exploring China’s Onshore Markets with RCM Alternatives Part 3,’ will be released next week. To ensure immediate access as soon as ‘Emerging Chinese Elite Managers’ is available, subscribe to our blog today.

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