Brad Conger, Director of Investment Strategy, Contributes to Bloomberg Article on China Capital Loosening

U.S. Money Managers See China Capital Loosening as Positive Step

By Margaret Collins

     (Bloomberg) -- Managers overseeing money for U.S mutual funds and wealthy families say the move by China’s central bank to loosen rules on foreign investors is a good sign but won’t result in a flood of capital.

     “It’s a step in the right direction,” said Dan Fuss, vice chairman of Boston-based Loomis Sayles & Co. “To me it shows that they are serious.”

     The changes, reported by Bloomberg on Feb. 3, would apply to funds under the Qualified Foreign Institutional Investor program, according to people with direct knowledge of the matter. That program lets large investors such as global financial firms and asset managers apply for a license to buy A shares of Chinese companies. The local shares, listed on exchanges in Shanghai and Shenzhen, include a wider variety of businesses than those traded as H shares through the Hong Kong exchange.

     Lock-up periods for the withdrawal of QFII funds from China would be relaxed and institutions would be given more latitude over when they can bring money into the country, said the people, who asked not to be identified as the plans have yet to be announced. The process for getting a license has been onerous, according to asset managers, with quotas on investment amounts and requirements to keep the money in the funds for months or more.

     “They are slowly, to the degree they can, starting to function as a reserve currency,” said Fuss, who co-manages the

$15.7 billion Loomis Sayles Bond Fund. “One of the requirements is that you be open to transfers in and out.”

A Shares

     The rule changes may accelerate the inclusion of A shares in Chinese companies into the MSCI China Index, which would open them up to more investors, said Jorge Mariscal, emerging-markets chief investment officer at UBS Wealth Management. But that will take time, he added.

     “We don’t invest in the A-share market right now, only the part that is benchmarked to the MSCI,” said Mariscal, who is based in New York. “We recommend only investments in the H shares.”

     The loosening isn’t likely to cause a flood of capital into China, said Brad Conger, director of investment strategy at West Conshohocken, Pennsylvania-based Hirtle Callaghan. Many Chinese stocks are expensive, said Conger, whose firm manages about $24 billion in assets for families, endowments and pensions and has positions in China-domiciled businesses through H shares.

     “The messaging is more important,” Conger said. “The Chinese stock market officials are saying, ‘We’re being more welcoming.”’

 ‘Happy’ State

     Conger said he wants to see how stock market regulation in China evolves over time, including rules on trading suspensions and on short-selling, before he would be comfortable purchasing A shares for clients.

     Beyond markets, the move is positive in terms of global politics, Fuss said. Increased cross-border trade and a good working relationship between the U.S. and China are needed for peace and stability in the world, according to the veteran bond manager.

     “The State Department should be happy,” he said.

T. Brad Conger, CFA

Brad is a Director at Hirtle Callaghan in the Investment Strategy Group where he is responsible for traditional manager search and supervision and is a member of the firm’s Investment Policy Committee.  Prior to joining Hirtle Callaghan in 2010, Brad was a fundamental equity portfolio manager with HBK in Dallas, Narragansett Asset Management in New York and most recently at Clearbridge Advisors in Wilmington.  He began his career in the Equities Division of Goldman Sachs.  Brad received an M.B.A. from Harvard Business School and a B.A. (Highest Honors) in Economics from the University of North Carolina at Chapel Hill where he was a Morehead Scholar.  Brad is a CFA charterholder.

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