Australian pension funds shun China over Xi’s ‘common prosperity’ campaign

Australian pension funds are pulling out of Chinese stock markets amid fears that President Xi Jinping’s “common prosperity” policy has increased the risk of government interference in the private sector.

Senior pensions executives told the Financial Times they fear that under the policy launched last year by Beijing in an effort to achieve a fairer distribution of wealth, the government could destroy entire sectors” with the stroke of a pen”. They pointed to the crackdown on private tutoring, real estate and tech companies that had erased billions of dollars from their market value.

“We just felt that [with] the reforms that have taken place, it has become too risky as a straight game,” said John Pearce, chief investment officer of UniSuper, one of the nation’s largest superannuation funds with $105 billion. Australian dollars ($77.1 billion) under management.

Australia’s pension groups, which are consolidating into a handful of megafunds, are becoming more globally active and their investment decisions are under close scrutiny by the industry.

Australia’s total retirement savings pool has grown to A$3.5 billion, fifth in the world behind the US, Japan, UK and Canada, according to consultancy firm Willis Towers Watson.

UniSuper was until recently one of the few funds to have a dedicated exposure to China. But Pearce said he had rescinded his direct China warrants.

“We just felt that [with] the reforms that have taken place, it has just become too risky as a direct game,” he said. “What does common prosperity mean so far? We’re going to belt the tech industry, we’re going to belt the education industry, we’re going to belt the real estate market. It becomes quite difficult.

He said it was unclear how the policy would unfold and whether it focused only on those industries. “Or are they just the first taxis in the row, [and] is it wresting control of the corporate sector altogether? »

He said the fund still had “pan-Asian mandates” with Hong Kong managers who had some exposure to mainland Chinese stock markets. “But we don’t have any pure A-share exposure,” he said.

China A-shares are stocks traded on one of the country’s two major stock exchanges, in Shanghai and Shenzhen.

Robert Credaro, head of growth assets at Aware Super, a 150 billion Australian dollar fund, said Xi’s decision to crack down on private lessons had “taken people by surprise”.

Aware had direct exposure to stocks listed in China commensurate with their weight in the global market, but the uncertainty meant this could be reduced to a weight “just below” the market.

He said there were always upsides to investing in A-shares. But the fund focused on small- and mid-caps which were “less on the radar” of the Chinese Communist Party than sectors such as banking, l insurance, telecommunications, technology and petrochemicals.

Ian Patrick, chief investment officer of the A$230 billion Australian Retirement Trust mega-fund, said the crackdown on private tutoring companies, which he said were “with the stroke of a pen reduced to zero in value “, was a strong signal for investors in China.

He said that did not mean investing in China was out of the question, but that the added risk necessitated commensurate benefits.

There was evidence of “increased risk as an equity investor – and potentially even as a bond or private debt investor – in China which should be reflected in forward yields”, he said. -he declares. “And if that’s not reflected, you have to ask yourself, am I better off deploying this capital on a risk-adjusted basis elsewhere?” he said.