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What Decoupling? China Is Deepening Interdependence Of Capital Markets, HKEX CEO Nicolas Aguzin Says

Decoupling has been a buzzword in China’s relations with much of the world. “Is China, the coupling from the West?  Is the West decoupling from China? Depending on what day you open the newspaper or check your phone, you will find opinions raging from one extreme to the other,” Hong Kong Exchanges & Clearing CEO Nicolas Aguzin said at an online forum on Wednesday.

Yet when it comes to financial markets, Aguzin asked: “Am I seeing decoupling? From our unique vantage point in Hong Kong at the confluence of East and West,  the simple answer to that is no. We are a very long way from a decoupling in markets.”

“If we stand back and take a more comprehensive view of the current macro dynamics, we can see that the overarching story is one of increasingly intertwined economies, greater financial connectivity, and ever-increasing symbiotic relationships.  While we can expect geopolitics to continue to shape the global narrative, we see heightened interdependency in global capital markets.  The capital flows between East and West are deepening and at a faster pace than ever before.” 

Aguzin spoke at an event about U.S.-China relations organized by the South China Morning Post. He has a good perch on Asia: Hong Kong Exchanges, or HKEX, is one of the largest investment hubs in the region. Amid Beijing-Washington disputes, it has since 2019 attracted secondary listings of by U.S.-traded, China-headquartered companies such as Weibo, Alibaba, and Netease. Beijing-based ride sharing app Didi this month announced plans to delist from the New York Stock Exchange and trade in Hong Kong. JPAguzin took over as CEO in May amid global economic tumult, after a long tenure at J.P. Morgan.  

“Over the past two years, the world has been characterized by volatility, turbulence and fragile market sentiment,” Aguzin noted. “The global pandemic, geopolitics and climate debate have all dominated international headlines. Heightened by the pandemic in particular, we have seen more inward-looking government policies, border restrictions, growing protectionism and a rise in nationalism around the world. At the same time, the world appears more polarized. As a result, positions on complex topics like global trade, politics and innovation often seen binary and without nuance, especially in the news cycle.” 

Signs of what is in fact growing interdependency, Aguzin argued, can be viewed by looking at China.  “Despite the rhetoric of recent years, China has been opening channels for investment flows, both into and out of its domestic capital markets,” he said. “As access as improved, international asset managers are moving into China's financial markets.”  Blackrock, for instance, recently became the first foreign asset manager to open a wholly owned mutual fund business in China. “Strong flows from international investors into China's onshore markets show how closer entwined China's markets and the economy are becoming with global markets.”

China attracted $142 billion of foreign direct investment in Jan.-Oct. 2021, an increase of 23 % year on year that made China the top global investment destination for corporate investments, after the United States, Aguzin said. U.S. mutual funds and ETFs had $43 billion in net assets invested in China at the end of August 2021, an increase of 43% year on year or $13 billion from a year earlier, he said.  International investors combined holdings of China bonds and equities reached the equivalent of $1.2 trillion as at the end of September 2021, a 30 % rise from a year earlier. 

But the flow isn't all one way, because China's market reforms have also brought onshore Chinese capital to global markets,” Aguzin said.  Between 2018 and 2021, overseas investments by Chinese residents more than doubled to $3.8 trillion. “And as cross border businesses and capital flows become ever more connected, this will result in even greater interdependency between the economies of East and West,” he said.   “We’re not seeing a decoupling at all.  The facts actually point to exactly the opposite.”

See related post:

After Biden-Xi Talks, It’s Wait And See For U.S. Companies In China


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