China Reopening (Report Interlude)

Investing in China has always been rather tricky for foreigners when considering the multitude of factors and nuances at play. From a varying style of government, to business dealings (SOEs), to socioeconomics, to languages, to accounting and reporting, one must be knowledgeable in Economics, Foreign Policy, Finance, Accounting, and Social Affairs, among countless others to truly understand how to invest in this foreign region. While the complexities mentioned above add to the risk of investing in a foreign nation such as China, foreigners for the past few decades leading up to COVID have sought opportunity in one of the world’s largest and growing economies.

Known to the world through the vast amount of news flow was China’s Zero Covid Policy. For the past two + years, the authoritarian regime has maintained the world’s most restrictive measures to contain coronavirus, causing economic and supply chain ripples across the world due to the large dependency from global corporate and government entities alike. China at the crux of balancing both economic growth and pandemic contagion has decided to reverse course and embrace a policy shift that will hopefully result in normalization and stabilization of economic triumph and social prosperity.

While there are many ways for foreigners to gain exposure to the region, through direct investment in ADRs, or actively and passively managed strategies such as ETFs and Mutual Funds, the aforementioned complexities still remain, that is, investing in a region where the investment landscape and risks are inherently different than “developed markets”.

Institutional Investing in China

To adequately invest in an emerging market such as China, we believe the most practical way to gain exposure and potentially limit a variety of risks, is through institutional private fund managers. Why? Institutional private fund managers, specifically many of the managers on our platform that participate in markets such as China have a deep understanding of local market dynamics through decades of acquired knowledge. Not only do these firms have investment teams on the ground in these local regions across the globe, but also have 24/7 trading infrastructure in place to participate in foreign markets. The type of advantage this global infrastructure provides these behemoths is unparalleled. Not only are these firms capable of acquiring employees from highly skilled local talent pools, but by having offices in these regions, these firms gain distinctive insight to local markets and dynamics that cannot be acquired in a different time zone. Additionally, having the local infrastructure in place allows for greater access to financial instruments on local exchanges, news flow, and ultimately the ability to make direct foreign investments with precision.

In this report we seek to highlight the general areas of consensus among the managers on our platform regarding China’s reopening and its impact on leisure, travel, and commodities.