Anton Chan, William Ma, John Tan, and Eva Shen deliver Opportunities in China Panel Discussion at Greenwich Economic Forum (Greenwich, CT)

HIGHLIGHTS

• Greater Bay Area (GBA) in Southern China has a population of 68 million with GDP of $1.5 trillion
• In 2018, global investors poured an estimated $81 billion into Chinese start ups
• Internet and tech. deals have accounted for approx. 85% of China’s PE growth over the past 5 years

FULL COVERAGE

• Watch complete coverage of the Greenwich Economic Forum

INTERVIEW TRANSCRIPTS: Anton Chan, RMB Specialist for Standard Chartered Bank, William Ma, CIO of NOAH Holdings, Eva Shen, Head of WFOE Client Solutions at Guotai Junan Futures, John Tan, Regional Head Financial Markets for Standard Chartered Bank

Julia La Roche – Correspondent, Yahoo Finance: 00:00

This panel is Opportunities in China. It is headed up by Anton Chan, RMB specialist for Standard Chartered Bank. And Anton, I’m going to let you introduce your panelists and take it away from here. Thank you.

Anton Chan – RMB Specialist, Standard Chartered Bank: 00:13

Hello. Hello. Okay, hear me. Thank you very much. In this panel we are bringing China to you. We have several experts from China. We have William Ma CIO of NOAH Holdings from Hong Kong. We have John Tan Regional Health Financial Market East from Standard Chartered Bank based in Hong Kong. We also have Eva Shen, head of WFOE based in Shanghai. That is why I said that we have the China coming to you. To start with, I would like to ask to the topic of the panel. What opportunities do you see in China? Could I start with you Eva?

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 01:05

Yeah. So China is a faster growing and attractive market. China is the best of size and or a growing well and their economic transformation were all created the opportunities for global role ambassadors. China’s futures market is among the most illiquid market in the world. And also, it has the great intention in China and a greater potential in China. And China’s equity market is the worst to be part of the global SS allocation after China, Asia Europe, including MSC MSEI index. But most of the important are right now the open up of the China’s financial market is accelerating. Chinese government has a launching many positive regulations such as the removal of QV and occupy quarter and the left the risk traction market the excises to provide a better investing environment and to encourage a global access management to enter the, into trying to facilitate their activities in China.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 02:16

On July 20 the regulator Asara case announced a set of 11 measures and to add her, continue to trade it off, accelerating there over the OPR Trina’s financial market for foreign investment and the participation, it included their promotion or for foreign financial institutions to establish invest in pension management, accompany the lifter rest traction of the foreign owners, sharp limited in security company and our futures company. More convenient to access in investor in interbank bond market. As the futures broker in China, we have seen more and more new counters and options left her under exchange. By the end all for October this year there have been 70 contracts traded in the market. Also, Zia are more futures counter is open through the foreign investors. The foreign institutional investors as tabulation as they are on shore entities named or WFOE or which named the foreign on the enterprises and the angel. July, 2016, they a WFOE can apply for PFM walk qualification with China’s security regulators. So there’s other opportunities I have seen in China.

Anton Chan – RMB Specialist, Standard Chartered Bank: 03:45

Thank you. Eva, what about you John? What do you think about in your area Opportunities in China?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 3:53

From my angle is the assessed to the China onshore capital markets which is now the second biggest in the whole world. And it’s not about the size, it’s also about the local relation with the other markets that make it ideal. Can adopt like an instrument to hedge or to diversify. Look at the size right now, right? The China bond market right now is 13 trillion us dollar and is still growing. And if we look into the percentage holding right now by foreigners is only 2.3% if you look at the US market, which is the number one in the world, 40% of the US bonds are whole by non-American. If you look at Boone’s 60% of Boone’s our whole by non German, if you look at the third biggest market, which is Japan, 13% one three is whole by people outside of Japan.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 04:50

So China right now is only 2.3% so I think it’s very likely that in the next five years, let’s call it the next five years, it would double and let’s say if we could reach somewhere like close to 10% could it be achieved in 10 years time might be if it reached 10% we are talking about additional 1 trillion US dollar going to go into this market, assuming there’s no growth at all in this market. So even if this market just stays stagnant, it will be 1 trillion US dollar going into this market. So I think this will be a very big opportunity for many investors.

Anton Chan – RMB Specialist, Standard Chartered Bank: 5:31

Thank you John. We cover up futures. We cover about bong. William, what about you? What do you think about China?

William Ma – CIO, NOAH Holdings: 05:37

Hi everyone. Anton asked me to, well as us to start the panel with some, you know, funny story or make it, you know, interactive so I start by telling a story. I think in terms of investment opportunity there is a company called Noah, N O A H. We were founded in ‘03 and in ‘05 Sequoia become our angel investor and then we were listed in New York stock exchange in 2010 going forward there will be more, you know, story like this, you know, trying to capture a partnering the growth story of the whole China market. I think that is the story that I come up with now in terms of the investment opportunity on the public space, I would say there are two different things. One is the equity side. We are seeing a lot of active investment return opportunities globally. We are talking about active versus passive.

William Ma – CIO, NOAH Holdings: 06:28

You know, passive guys, you know, they are cheaper. They are capturing a lot of, you know, beta man and market upside. But in China we are actually seeing a good territory for the active manager to outperform the market for the following reasons. Reason number one is the market in many industries, very fragmented. And the example I would like to, you know, quote his son, again trying to be funny is a soy sauce manufacturer in China. I’m sorry, a soy sauce manufacturer in China. I’m guess how many people you know, per year. I mean how many kilogram of soy sauce they consume per year. It’s about one kilogram on average for the Chinese people, but six kilogram of soy sauce consumption in Japan. It’s not that because they are eating more sushi if you like. It’s when the economy get richer, people consume, you know, more sodium.

William Ma – CIO, NOAH Holdings: 07:18

So back to the soy sauce story. You know thank the soy sauce story is actually the company on about 12% of all, all soy sauce market share in China. But Kikoman, the largest soy sauce manufacturer in Japan, only about 30%. So actually there is a trend for industry consolidation. This is one of the example and I start mentioning about this talk, you know in China about five years ago and the stock went up, you know you can check the share price. So point number one is there is a lot of industry, they are not consolidated going forward it will be consolidated. So active managers have a better chance to outperform the passive. The second is actually there are dispersion of return. For example year today the best performing sector and worst performing sector in China is about 50% five zero.

William Ma – CIO, NOAH Holdings: 08:10

So being an active stock picker, actually you can add a lot of alpha. That is for the discretion of the manager. And then the second point on public market, we are seeing more and more new strategy coming up. You know, statistical arbitrage stand up. You know, I’ve been a global fund manager for more than 15 years. Stand up. It’s an old story globally. And then the offer, if you like, has been compressed. But in China, standup is a new strategy here today. The standup manager in China can generate 20% year to day return because of the volume has increased. And later, you know, we are seeing the emergency of volatility arbitrage. So those opportunities that in the public market we are seeing that it’s actually our offer, you know, for a lot of global investor.

Anton Chan – RMB Specialist, Standard Chartered Bank: 08:56

Thank you very much. Really we, you can, in the panel we have equity, we have bond, we have future, we have different asset class, brand new property. And I actually w we also want to know from the audience are how many are you currently actually investing in China equity? How many of you investing in China bonds, fixed income markets, how many of you investing currently have, are doing onshore China futures? We know where the market growth will be. You know, given what has been happening, I cannot get out of the panel without asking you guys deal to the bumpy road of the training Goshen between US and China. That’s, you know, like that affect the opportunity. We just discuss any thoughts, comments on that?

William Ma – CIO, NOAH Holdings: 09:59

Maybe I’ll start because they are looking at me. I think on the public market space it actually speed up a lot of market opening and industry consolidation like the supply chain. Now the key theme for a lot of private equity and some you know public market hedge fund, they’re looking for the high end manufacturing sectors because making China become a more and more popular, you know a trend if you like and getting more important. So the benefit if you like for the potential trade war is it speeds up industry consolidation and secondly the market opening up like the financial market this year. You know as you mentioned, you know that will be fully own kind of Chinese asset management by global from fully on Chinese banks and brokerage by global firm. I think those will improve the industry dynamic and generate opportunities because of the trade conflict and free wall.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 10:51

Yeah. I think on the tray wall right in the next six to 12 months, both sides have a lot of incentive to reach some deal. But I think we are entering into a new normal. The new power is going to have a lot of up and down conflict standard role and they will just continue in the next, I don’t know, five, 10 years or even longer. However, I think that also make China that number one, they want to internationalize our RMB. They want to make sure that our RMB becomes a tradable international currency. And number two, they want to open up the local domestic market even faster in order to attract more flow into China. And so I think it actually helped to speed up a lot of the opening and just mentioned we’ll mention, right, they already announced that next year there will be no more limit on foreign ownership on securities company, on asset management company. Right now if you want to get into those markets, you need to form a JV, but next year you don’t have to, you could just go in and build your own company.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 11:58

And China has always been determined to open up the financial market. This remains on trenches, no matter how the negotiator from their perspective, this marketing has been taking steady steps. As I mentioned it in the last two questions. The launch of new regulations promote and encourage, the new investors to participate in this market on our side. And we hope to attract more and more foreign institutional to invest in China’s market to inject it a more liquidity in this market. In the other hand, it could or introduce more trading experience to our local players to make their domestic and marketing more effective and a stable. There’s also part of the reason why the investors tracked her off the domestic market has been improved. Institutional investor has been an important component and the market the domestic, the reputation market has started to gain significance offering more investment of choice and the toys of the risk management.

Anton Chan – RMB Specialist, Standard Chartered Bank: 13:09

Yup. We have been talking about, you know, like different opportunities. I’m sitting as an investor here when I want to go into China, how should I prepare? What should I consider? What, what should I know about John you want to start?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 14:06

Yeah. I think it’s like the first difficulty or first challenges that China have many different regulators. You have PPO, you have safe, you have CVIC, you have CSRC so many different regulators. And a few years ago China actually tried to merge it to form a super regulator, but that project failed. So I think it’s no longer going to work like that. So there’s different regulators. At the same time, there are also different province. Every province want to be the first to test out some new ideas. Shanghai want to have a free trade. I want to do something new. Every city, every province want to start something that create a problem was that China from time to time pop up different things, different ideas. So initially you have to kill fee to enter China. After a while, then they, somebody start to say, Oh, let’s do our QV. You could shoot our MP to go directly into China. Then somebody started to say, Oh, let’s have a CIPM direc less have people directly buying bonds through the CIPM direct and after a while the Hong Kong exchange start to come out and say, look, I could actually do a bond connect. You could through Hong Kong to buy China bond. So suddenly you have a different scheme and all these different scheme could provide you different advantage, disadvantage and everyone have to cite different documents doing different things. So it’s actually very complicated and that’s why I think Andrei new China from that perspective, you do need to have some partner that understand the market that could give you ideas that which market is actually better or which assessed path is actually better for your company.

William Ma – CIO, NOAH Holdings: 15:11

I think regulations is of course, you know number one, and there are also, because some of our clients are actually global institutional investor and pension funds and they are concerned about the jurisdiction legal structure. You know previously if they invest que fee, you know basically they can invest in a China stock. But nowadays the more when the Q fee is, you know, disappear and you can go direct actually they can invest in a Cayman fund structure with the administrator auditor that they are familiar with. So in that part the legal is more offshore, but the underlying asset is through Hong Kong Shanghai connect, you invest in a Chinese company so they feel more comfortable in this part. But secondly is a currency. So often times you know, people are concerned about you know, renminbi depreciation potentially and whether they can hedge with the cost would be too much. I was told you are the expert. So what is the hedging mechanism?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 16:06

Actually nowadays the hedging causes coming down quite fast in the past five years. If you look at the spot market, right, if doing FX hedge right now you’re talking about five pips to maximum 10 pips on the spot market. Let’s say you need to do a forward to hedge where you do a one year forward. So you add a bit of a spread of the, of the one year for SWAT point, there’s another 10 pips or 15 pips. So adding up together. So I’m only talking about 10 to 30 pips. There’s maximum. So it’s actually quite cheap right now to hedge. And also you could also hedge in the onshore market as well as in the off your market in Hong Kong. So there could be some discrepancy from time to time, but most of the time accurate. The two market trade very closely together. But sometimes people, particularly foreigners would prefer to use the offshore market, which when particularly during crisis we more refract the true value of RMB compared to the onshore market because our offshore market might be a little bit more control or manipulated. But in the law more time, the two market actually very much synchronize.

Anton Chan – RMB Specialist, Standard Chartered Bank: 17:13

Let me go into this point a little bit. I remember like we talk about William, you remind me like some of the investors where they look at the equity market, like what’s the return they’re looking at live and really talk about GDP plus.

William Ma – CIO, NOAH Holdings: 17:28

Yeah cause some, some of the investors they’re expecting high single digit, low teens type of return, you know, and the thesis is, you know, on-time GDP growth in China could be 6% 5% plus, you know, four to 5% equity risk premium. Then you’ve got yourself a double digit type of return before fee. Not mentioned about the alpha opportunity that I mentioned earlier, but you know the currencies part of that.

Anton Chan – RMB Specialist, Standard Chartered Bank: 17:52

John, what roughly was the hedging cost per annual nowadays?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 17:50

Yeah, if you use those sort of like a beat over spray. Right. You know, you’re only talking about a few basis 0.2 to five basis, one max. So it’s actually quite minimum.

Anton Chan – RMB Specialist, Standard Chartered Bank: 18:05

Comparing to the one to 2% that some people have in mind is that different, you know, levels. So like if you have this question regarding, you know, equity or like hedging come to talk to us after we have a solution here.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 18:19

But of course it’s like the power market would not be able to generate the kind of return that the equity market could have. Right. But it’s still were attractive. Most people go into China to buy the government bond. If you look at the five years, government bond is about 3% and 10 years, 3.3% something like this. But if you look at globally, most of the country now is close to zero or some even negative, right? So if you could generate 3% plus in the fixed income market is actually quite attractive. Of course you would talk about, okay, how about the currency? Would there be currency depreciation? Would you have to build into your, your expectation and how to hedge it.

Anton Chan – RMB Specialist, Standard Chartered Bank: 18:51

So we have a solution for bond investment plus a hygiene and also equity plus hedging. So Eva, what about you? What do you think like investors to consider when they go into the futures market? What challenges they’re facing?

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 19:04

Yeah, because it’s different for the futures trading. So currently they are three ways to intervene to China’s market for futures trading. The first master that yesterday, Q fee allows the qualified or invest or foreign investors to invest in the in lifted or equity and imbalance. And there it’s worth noting in January this year, Chinese regulator C is assay released our consultation paper to propose a QV regulation that expands the investment of scope. It include that allowing Q fee to invest her in domestic a private fund and our commodity futures options it a salary. The second message is to set up a PFM WFOE until the new QC regulations take us into effect. The strategy of global managers cannot be fully in payment in China so far to those four ring players who have long-term plan in China, they could establish a PFM WFOE in China. The PFM WFOE is treated equally as a domestic private fund, which means it can raise bond or locally and can invest all instruments in China. The certain method is their international futures contract. If you just along test at a water, maybe you can trade at an international law contract that you’re at the beginning that requests your nether Q fee not worth the, you could direct the trade as a overseas player. Current strays, they are four futures contracts. Open to foreign investors ZR Crow, all are law PTA and a TSR. [

Anton Chan – RMB Specialist, Standard Chartered Bank: 20:50

Yup. I am just thinking like we are talking a lot of things like theoretical. If I want to go into, I don’t have any experience like other being a Chinese investing into a China my account, I want to go into the equity market. What should I do the first thing?

William Ma – CIO, NOAH Holdings: 21:07

I think because of the market opening and the, the Hong Kong Shanghai connect actually it’s very convenient and easy for you to invest in a standard Cayman fund structure and then the fund underlying will be mass in the China issue. So he is no different for you to eMASS in a European fund. But I came and fund structure or us fund came in funds from.

Anton Chan – RMB Specialist, Standard Chartered Bank: 21:26

John, what about like I want to go into the bond markets. What should I do as the first step?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 21:33

I think for a lot of asset managers, right? The easiest one is to you approach your bank, which could help you to open an account in Hong Kong. So that will be a bond connect direct. So as we think it will be side with the topic of Eastern, Western familiar and Wellman and then the custodian will be actually in Hong Kong and it’s through that bank. You will actually purchase bond in China, in China and in the field and on the hatching. You could also do the hatching either in Hong Kong using the offshore market or using the onshore ethics market.

Anton Chan – RMB Specialist, Standard Chartered Bank: 22:09

Okay. Eva what about like, I am first into the future market as a foreign investor. What is the first step that when I go into China’s market?

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 22:17

So the right way to enter into China you have three ways. I had just, QV or fi and internalize internationalize and choose the way.

Anton Chan – RMB Specialist, Standard Chartered Bank: 22:33

So choose first and then talk to you.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 22:37

So tourists are right are very important.

Anton Chan – RMB Specialist, Standard Chartered Bank: 22:39

Okay. Let us change gear a little bit. When we are in US, we want to know the markets, US markets very important, but we also at the same time want to know what are the people, so I’m doing a European investor, so Asia investors, you know, like it is quite different dynamics. Given you guys as in Asia, what are you seeing? What are the investors are doing in your specific field? John, will you want to start?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 23:04

I think depends on the client group, right? If you look at central banks, sovereign funds, our reserve management right now, about 60 of them are already in West in the China bond market. I think the Asian central banks and sovereign funds are more aggressive. So they are buying into the China market in a much bigger scale. In terms of asset managers, asset management. Right now there is actually I think all together more than 2000 we must have already registered some of them. European, some of them American. I think both are very active and the top asset management or in the market already. However you start to look into the corporate. I think European are more, they a few step ahead of US. So European corporate are actually using more our MBA also as settlement. So they are not only buying into the bond market, they are also using RMB for settlement. However, we do not see a lot of us corporate doing that yet. Might be politically.

Anton Chan – RMB Specialist, Standard Chartered Bank: 24:13

Some reason for that Eva.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 24:16

Okay. That’s the China’s market are growing rapid. There are investors from European and Asia are preparing for our better landing for their capital. China is now the second largest economic in the world. Wisdom. Most are trading volume also base mantle and their agriculture a product at a salary. While more and a more futurist product about to list in the exchange of the prisons in China’s market is necessary for global investors SS altercation. Also, it’s a reasonable for China’s financial market to open more and to attract more foreign investors. European and the Asia market have the closest relationship of ways to attorneys, real industry, which is the reason why is there the amount for commodities Hendry yes. It growing to mantic Lee SAR for most of offers that will truce or ride a partner to do the local capacity building

William Ma – CIO, NOAH Holdings: 25:15

And for, for the Asian investor, I think given that business or their asset base, which is technically used to became more co-related to the China asset classes. So when the domestic China market they are more looking for the future growth opportunities. So is from a return perspective for my understanding, European investor, when the mass in a China or Hong Kong market, they’re looking for more stable cashflow. For example, now some of the banks, Chinese banks changing out the Hong Kong stock exchange are using about six or 7% dividend. You trading at 0.7 times price to book, which is kind of like attractive stable income type of asset class for them.

Anton Chan – RMB Specialist, Standard Chartered Bank: 25:54

Since we’re in that topic, actually we also want to know for us investors, European investors when they access to China market, normally how do invest do to set up due you think because of the time zone difference. They, you know, light trading out of US mostly or do they have Singapore with what does the best practice because you know, this is one of the key questions. The operation, we have to think about. Anyone want to go for it?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 26:23

You could do both. Right. I love the big funds. They actually have a sale already, mostly in Hong Kong or Singapore and then doing Asian time zone duty trading into the bond market. But at the same time, actually, even in New York Times they could actually also do a lot of hedging activities.

Anton Chan – RMB Specialist, Standard Chartered Bank: 26:43

Yup. Yup. I agree with you. Hedging, you know, like the ethics is quite liquid now. William.

William Ma – CIO, NOAH Holdings: 26:50

I think in terms of operation, because you know, historically Japan has been a big market for a lot of global, a long time ago. So I think people do have experience in dealing with the Asian time zone, you know, same as trading Hong Kong, Australia to some extent, you know, so China should not be anything big difference.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 27:09

I think a full trading in China it’s better to do the simulation, a simulation task try in China to adopt the market to enter the regulation because that’s a totally different.

Anton Chan – RMB Specialist, Standard Chartered Bank: 27:20

Yup. So you are seeing actually I’m also seeing that actually more and more company actually set up in Shanghai as well. So apart from of course like US headquarter, like I know like some of the investors give do night trading also can kind of see that Singapore, Hong Kong or Shanghai office, since we are also in that topic, I’m just curious, do you expect the liquidity in China no matter equity markets, bond market, you know, ethics market, we know that CNX is like now in US hours quite liquid is okay. What about bond market? What about futures market equity market? Would that be a chance that, for example, Asia I mean like Asia can trade USD through ADL whether, you know, US can trade Chinese equity, Chinese born, you’re over here.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 28:19

I think right now, right? If you look at the Chinese bond market, majority of the purchase from foreigners are still did China government born and also the policy bank barn. There’s very little interest in corporate board. I think one of the reasons was the corporate bond. Do you trust the local rating agency? And there’s not a lot of transparency. And of course nowadays Chinese regulators start to allow SMP or, and in the future Moody’s or Fitch to come in and do the independent credit rating. I think that will help, but it will take many years. So right now you still, if you talk look into, I see a top, like we call it a CGB. The China government bond market is extremely liquid. I, you could get in and get out very easily, but if you are looking into the corporate bond market it will be very difficult.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 29:10

And the law quite often the Chinese local banks by the corporate bond, they will buy and hope they will not sell. So there’s not a secondary market. And the difficulty was also because the local weighting agency, everyone is tap away. So you can’t really distinguish this one is better than the others. Right. And because they hold the majority, it’s really depending on the local investor, how much they know about this company and it’s very difficult for a board investor to go in and understand that market. So market will take much longer time to develop.

Anton Chan – RMB Specialist, Standard Chartered Bank: 29:44

So you are seeing the opportunity nowadays are probably more in the quick government, more like a government bonds market then the credit. What about like the, the more liquid market, do you think of the hours of trading will be extended in the future for a US investor to trade here in this time zone.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 30:04

We have proposed a top like lean into time of grading, but I think it’s like a, you would take times because it’s like right now the muster going in there, as I said, it was only 2.3% right? As the China government start to see that. Okay. More and more interest is coming out from different time zones. I think they will extend it but mean meanwhile I think they resolved like still wanting to keep it.

Anton Chan – RMB Specialist, Standard Chartered Bank: 30:33

So probably should be at the moment but in the future can potentially extended because you know, when we talk to clients here in this space, a lot of clients want to trade you know, in this time zone that it don’t have to stay late. William, what about you?

William Ma – CIO, NOAH Holdings: 30:40

Well, on the equity side liquidity is not a big concern in the China market. For example, early on this year when the market is really hot, the market daily volume is about 1 trillion RMB. So he’s a huge kind of liquid market and part of it is because of the trading pattern for retail in institutional investor in China. Guess what is the annual turnover of the mutual fund manager in China? We are talking about 10 to 12 times portfolio turnover per year, which is the broker would be very happy, you know, trading at, you know, one basis point. But I think it’s the nature of the China Asia market, that liquidity is quite large compared to the global hedge fund, if you like, you know, they’re trading at one to two times a portfolio turnover.

Anton Chan – RMB Specialist, Standard Chartered Bank: 31:24

What about, what about a time zone do you think? Like, I think there were ways for us investor to Che Chinese dock here in US right?

William Ma – CIO, NOAH Holdings: 31:32

Yeah, I think time zones is one concern, but I don’t think it’s a huge or big hurdle if you like, because if you look at the Asian, the master, when the mass in the US market, sometimes they hire portfolio manager, they outsource the allocate to up US manager. Maybe we can also can see that through the same thing. You know, you invest in a China manager, let them on the ground, do their work, you know, rather than, you know, building your own team, you know, trading stocks from a different time zone.

Anton Chan – RMB Specialist, Standard Chartered Bank: 31:59

I’m not sure that conversation came up at all. We got in time zone with US investors on the futures.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 32:08

This market, we have their data from trading and we have the nighttime trading. So I think it’s a no problem for the foreign masters.

Anton Chan – RMB Specialist, Standard Chartered Bank: 32:16

Oh, okay. William just now you touch on the liquidity and the cost. So I just want to go in a little bit, like in terms of the helping market, private market, how do you see the liquidity the cost, etc. for investors when they go in and out?

William Ma – CIO, NOAH Holdings: 32:35

I think public market is it’s very cheap if you like. The average is you know, one basis for you know, two basis point if you like. So, so that part is not very expensive. Private equity if you like, as we discussed, you know, by some of the panelists early on this early on this morning I think in terms of valuation is getting to an demanding stage if you like. And the Chinese government is trying to solve this, the IPO pipeline by launching off the stop or you know, the new technology port. So there’s some of the companies they want to get listed, at least they got more window or a market approach to get them listed. So I think liquidity will improve and the funds can kind of like when they expire lockup, they can return capital to the master earlier because of the IPO liberalization.

Anton Chan – RMB Specialist, Standard Chartered Bank: 33:20

Yup. John, what about in the bond market, the liquidity, how does it work?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 33:26

Yeah, as I mentioned earlier, right now the liquidity if you go into the government bond market will be very, very good. But then not so in the corporate bank

Anton Chan – RMB Specialist, Standard Chartered Bank: 33:36

From China government, what are there any other bonds that would good liquidity?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 33:44

The policy bank policy. Construction banks.

Anton Chan – RMB Specialist, Standard Chartered Bank: 33:49

Probably those are the one that, you know, investors are choosing. Eva what about the liquidity in the futures market?

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 34:02

Because in China they have their finical market and their futures market or so the liquidity for their commodity is very well.

William Ma – CIO, NOAH Holdings: 34:10

And I do have an extra observation on a pole market in China. Our clients, you know style if you like your small like hold to maturity. So when a bond is being issued, basically they will hold them to, it’s being mature. And the second question for lack of liquidity in the China domestic foreign market is because of the rating agency. Historically, you know, the spread between what you call good quality company and less good quality company, the spread is quite tight, which means active credit manager do not add a lot of value because of the credit agency and lack of liquidity. But now, you know, early on this year SNP is being allowing China to start doing, you know, credit rating. I think those would enhance the liquidity of the, you know, public porn market and they would also increase the liquidity down the road.

Anton Chan – RMB Specialist, Standard Chartered Bank: 34:57

Yup. Yup. Let’s go into a little bit, because you know like China rating, our landscape has always been there. I have their own landscape. Right. So what do you think like in the future, how, you know with the Moody’s S and P our fish when they go in they will adapt to the market or they would bring international standards to China. How do you think that would play out?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 35:21

I hope so. I hope that they will bring international practice. Right? But we also hear that they, you could be some twisting to atop to the local environment. And I think this whole process will take long, long time because I love to cooperate when they issue board, they know that they have enough domestic investor to buy it. So why bother? Why bother? Could go to a foreign rating agency, right. Unless there’s a big incentive, might be the government say, Oh, you’re being such a big company. If you use your bond, at least you should target to have a certain percentage to be holded by foreigners, foreign investors and they will be pushed to go to SAP or Moody’s in the futures to do some rating.

Anton Chan – RMB Specialist, Standard Chartered Bank: 36:05

Interesting point because it’s not just about, you know, foreign investor going into China. Also about, you know, how the Chinese local investor are responding. I have lots of questions. Sorry. how do you, what are Chinese local players now they is doing and how are they responding to foreign investor coming into China?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 36:36

I think because of the fact that China is lacking of investment instrument, right? You don’t have a lot of choice. The Asia market is not that big a, then you have to buy pounds. Other than that, then you buy properties. And that’s why there’s a lot in the property market. There is not a lot of investment. And now even the sports shoes, everyone is taking a bed and then doing that. So I think it’s like a local investors, they looking for you. So they will, many of those corporate one when they come out is very easily supplied, by the domestic investors. Okay.

Anton Chan – RMB Specialist, Standard Chartered Bank: 37:13

Eva, what about the local, you know, like there was a very big local participant in the futures market and what are they what are they doing right now? What do they, what are they responding when, you know, foreign investor coming in.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 37:30

See what we can see. entry.

Anton Chan – RMB Specialist, Standard Chartered Bank: 37:34

So they don’t think the investor would come in that quickly. I mean, we have the capital costs.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 37:39

So the cost is they thinker they’re a pick knowledge or the trading system has made it be better than their domestic market. So just a true stir wait and see attitude.

William Ma – CIO, NOAH Holdings: 38:01

And, and on the regulation size, you know, actually we are on the Asian can be tee off the hedge fund standard board. S P a I standard port of alternative investment, you know, together with some of the pension funds in the region like GIC, CPB, IBN Hong Kong, I me and we talked to the Chinese regulator on a regular basis. Actually the direction and approach is to open up or to upgrade the domestic headphone standard and that are all paying a lot of, you know, those policy and rules and regulations. I think those would help, you know, domestic fund manager and global when they come into you know, compete or to understanding that common ground if you like. And secondly your question regarding what is the appetite for Q feel, although we messaged in the China market, the good thing is you can look at from the queue fee data, you know, they publicize, you know, what companies the QV is higher now the most popular kind of companies or sector if you like is consumption, you know, mouth Tai, you know, and also some of the banks we in China.

William Ma – CIO, NOAH Holdings: 39:03

So I think consumption is a big theme that full global investor participating in the China market. While as I mentioned earlier, the domestic fund manager of course they like healthcare and consumption. But at the same time there are some unique theme, maybe some midsize company that unless you’re on the ground, you know, do the research, otherwise it’s hard for them to discover.

Anton Chan – RMB Specialist, Standard Chartered Bank: 39:25

Yup. So William, do you see foreign investors also partner with local investors do some kind of research to invest in those company or…

William Ma – CIO, NOAH Holdings: 39:35

Yes. If you look at the trends, some of the Google investor, you know, one day either building their own in house, direct team, you know, based in Hong Kong. And then hiring local team to UMass in the China Asia market or actually they are allocated to some of their fund houses, you know, in China. So that they use the underground knowledge, the access to the China model.

Anton Chan – RMB Specialist, Standard Chartered Bank: 39:55

Investors in China. They are acceptive to, you know, receptive to collaborate with a foreign investor. Are they, are they be feeling, you know, their market is being like there are more people getting into the market.

William Ma – CIO, NOAH Holdings: 40:09

I think it’s a good thing if you look at the market dynamic in China, 80% of the market volume, yes. Retail investor, which makes the market very volatile, you know, which is, you know, provide, you know, of course, good opportunity for active manager, but at the same time it’s bet for the company investor because you know, if the volatility is high, chances are you are buying high and selling low if you like. So if there are more institutional global investor to take countersign off the trade, the volatility in the China market I think that would be benefit for the overall, you know, marketing.

Anton Chan – RMB Specialist, Standard Chartered Bank: 40:46

So just now we talk about you know, like the equity and not in top and top paid for. Well this one is actually index inclusion. We are seeing, you know, for equities coming for bond coming. I, I’m thinking about for futures, like what can be leveraged on that. What, what’s your thoughts on the index inclusion and how it, you know, change the dominant dynamic, the markets?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 41:10

Well in the bond market definitely is a very, very big sort of like a, a factor of I think the inflows into China, right? Our estimation was that if all the three major in index started in China bond market into the index, we think that there will be passive investment will be over 280 billion. We will go into China just because of the passive requirements. Just to follow the bottom.

William Ma – CIO, NOAH Holdings: 41:39

Yeah. Same situation for the equity market. For example, year today, the Q fee flow is about 20 billion us dollar already compared to 52 billion last year. But this year is a little bit bumpy compare. Last year. So I think the MSEI index inclusion on the equity market definitely provide extra interest from global investor to look at the Chinese market role.

Anton Chan – RMB Specialist, Standard Chartered Bank: 42:01

So now we talk about passive and also potentially we can bring in more active investor coming in as well. Eva, any thoughts on, on that, on the, on index inclusion or

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 42:14

I think it injected their liquid into your, into the market and the raise the confidence of broader investors.

Anton Chan – RMB Specialist, Standard Chartered Bank: 42:22

Yup. So I, I also heard you guys just, you know, mentioned about the, the regulator, you know, like, which is very important part when investing in do China. We want to know like, just basically what are the relaxation lately probably you guys touch on the load of big, you know, early on and what you expect for the future relaxation in your respective area. Eva. Oh, John.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 42:51

Yeah. The IPS that are opening up of the China’s financial marketer continued to make it as daddy’s progress. And the trend is government has been promoting our greater opening up encourager, global access manager to inter into China’s market. And for salary, say activities in China, it is likely that the regulators will continue to provider McAfee excise for highly quality institutions just like the top notch hedge fund and or the SS management. But they will also maintain their cautions approach issues such as cross border capital flow to avoid other possible risks.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 43:32

I think it’s very likely that they will allow for an investor to assess the CGB bond futures market in China. So they would hatch in the bond futures market. And I think the next relaxation probably we will be on report allowing for an investors to do report on their bonds.

Anton Chan – RMB Specialist, Standard Chartered Bank: 43:51

Yeah. So that would be allow for both a bank connect and see I’ve been direct

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 43:55

But I think the futures assessing the futures market come first.

Anton Chan – RMB Specialist, Standard Chartered Bank: 43:59

So that would be the you know, for the investor as well as for the banks as well. Yep, yep.

William Ma – CIO, NOAH Holdings: 44:05

On the equity side, you know, because you know, kill fee is no longer needed and Hong Kong Shanghai connect is actually in good progress. I think that direction is go two ways. If you recall earlier on we’ve got a China London connect as well. So I think the traffic is going to be both directions in terms of opening, letting domestic investor disappearing more to the global market as well. And the longer term opening go if you like, I think is has to be a higher level like renminbi internationalization and interest rate liberalization. So these two other Penn years to know gold off the Chinese government. And that point I think is.

Anton Chan – RMB Specialist, Standard Chartered Bank: 44:42

How does government be in immunization come into the picture with equity?

William Ma – CIO, NOAH Holdings: 44:47

I think in the equity world is all about asset allocation and diversification. I think for the domestic Chinese investor as John mentioned, you know there are limited asset classes. They can invest, you know, property, you know, fixing come a less extent. And then equity market. So if renminbi internationalization can go bigger, actually the Chinese asset can invest in more diversify asset in their portfolio. It’s now being asked to mater. Among the high net worth in China is 5% of their asset is global investment. And for US investors about 15 and in Europe it’s about 40% of their portfolio school. We mass. So I think RMB internationalization definitely help domestic Chinese investor to diversify their portfolio.

Anton Chan – RMB Specialist, Standard Chartered Bank: 45:32

What do you guys think about RMB internationalization? How does that interact with your area?

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 45:39

I think it’s like definitely pay something that the government is pushing very hard, but it’s not easy. Right? I think the setback in 2015 when they depreciate the currency, making a lot of people worry about capital control, policy changes. So even now that is included in the job, I think a lot of people still have reservations so we take times, but definitely that will be the direction, particularly under the trade war. China government is getting more and more in the future. If they have to do everything in US dollar, that would be a major.

Anton Chan – RMB Specialist, Standard Chartered Bank: 46:15

Yeah. So is good and bad there. You know, opportunity. At the same time, there are a lot of challenges like you know, the government have to do the investment when we go in, we have, we have to face is not a straight way path. So I know we are running out of time. I want to you know, end our session of with just asking each of you to give just one sentence what should invest to do to capture the opportunities you just mentioned. Just one sentence.

William Ma – CIO, NOAH Holdings: 46:44

Okay. I was not first in your next summer. Maybe spend your summer holiday with your kids in the second and third tier city in China to observe the growth.

John Tan – Regional Head Financial Markets, Standard Chartered Bank: 46:55

Yeah, I would say is just the beginning. So the market is just start to grow.

Anton Chan – RMB Specialist, Standard Chartered Bank: 47:03

Just a lot of opportunities waiting for you to capture.

Eva Shen – Head of WFOE Client Solutions, Guotai Junan Futures: 47:09

I think it’s three steps the first eight years to know about the market and the second is learn about the regulations. Last but not the least. Find the right and the local partner may be either a right? A broker in China can solve their programs in locally.

Anton Chan – RMB Specialist, Standard Chartered Bank: 47:36

Thank you very much.