Euro firms eye Chinese funds
This article was produced in association with ELITE Connect. It was originally published on the ELITE Connect platform.
There’s no doubt China is currently experiencing a high level of volatility in its domestic economy, but the potential for European firms to target Chinese funds for investment remains strong.
It’s not so long since the regulatory constraints restricting Chinese investors from investing abroad were lifted, and European investments continue to be seen as an attractive market for the Chinese.
Many European IROs are focusing on embracing this interest, but the approach to engaging with this investor base needs to place quality over quantity when it comes to forging relationships, as Dominic Mattiucci, targeting expert at Ipreo, observes.
‘We’re certainly seeing an increase in European IROs going to China to maximize Chinese interest in European markets,’ he says. ‘What is different, though, is the nature of building connections there; it’s very much a case of nurturing relationships over longer periods of time, getting onto an investor’s radar and staying there. Facetime is crucial: the Chinese really do place a lot of value on face-to-face meetings so one-to-ones– and many of them – are commonplace.’
In targeting China, it’s important to distinguish between the two distinct investor types – nationalized funds and private funds – as nationalized funds lack interest in investing in foreign equities.
Perhaps the ultimate way of engaging with Chinese investors is to establish a local IR function in the region, a method employed by BASF, as Martin Liedemit, deputy head of investor relations, explains: ‘It’s not the norm for European companies to have IROs based within Asia, but we took the decision about two and a half years ago to establish a local IR function to boost our connections as the market developed. Our presence there means that, as well as China, we can concentrate on other Asian markets such as Japan, Singapore and South Korea.’
European firms have a lot to gain from seeking Chinese investment, but the figures don’t always reflect this overall potential. Latest figures from Ipreo reveal that while 2015’s first, second and third quarters showed a continual increase in the growth rate for Chinese investment into European companies (up 9 percent, 27 percent and 38 percent over the same period last year, respectively), initial indications show a first quarter decrease in this growth to 16 percent.
‘Publicly available information coming out of China is always very slight, so it’s difficult to know whether IR activity is materializing into investment,’ Mattiucci concludes. ‘What is clear is that although targeting China requires an investment of time, money and resources, overall figures for 2015 show this to be a worthwhile focus for European IROs.’
Current Chinese investment in European equities by sector
• Financial services 46%
• Energy 19%
• Utilities 15%
• Technology 12%
• Other 8%