On December 11th 2001, China’s admission to the World Trade Organization [WTO] unveiled the beginning of Globalization. People who witnessed a substantial change in China during the first 10 years of the 21st century are certainly impressed by how globalization of consumption has significantly changed our daily life. As time goes by, this revolution has impacted the financial world as well. I believe that with the accelerated process of RMB internationalization and more foreign exchange reserves flowing to the private sector in the next 10 to 20 years, the globalization of investment by private sector will become a general trend in most Asian countries.
After I graduated from the Johns Hopkins Carey Business School with a degree in Finance, I joined Morgan Stanley as a FX derivatives trader in 2012. Three years later, I returned to China and was employed by DH Fund Management, a global macro-focused hedge fund in Hangzhou, China as Director of the Overseas Market Trading Department. Unlike most developed countries, China has relatively limited investment channels for local Chinese investors. Domestic institutional investors are mainly engaged in M&A deals and individuals only target real estate assets when they allocate assets through overseas investments. Even though there were a few foreign financial institutions in the Free Trade Zone of major cities in China, during the past two years, most of them mainly aim to invest in Chinese local markets rather than helping locals to invest overseas.
There are two major reasons behind this phenomenon. On one hand, domestic foreign exchange control policies and local investor culture play a significant role in prohibiting large outflow of assets. On the other hand, the lack of professional institutions and talents engaging in this market makes this process more difficult for locals to gain a better understanding of the overseas investment opportunities.
I believe that the overseas investment prompted by the private sector will bring prosperity to the Chinese financial industry and subsequently lead to increasing needs of talents as well as growing mature investment strategies. From my point of view, global macro strategy is basically generated through political and macroeconomic fundamentals or macro quantitative & statistical models. Therefore, you will be an outstanding candidate if you have the aforementioned top-down “Quantamental” mindset and skills.
However, it’s difficult to only rely on public macro data to invest in less developed emerging markets. In that case, the social and communication skills to acquire alternative data to analyze from the micro perspectives will also be welcomed in today’s macro funds. From a different aspect, I believe that investment return is generally composed of three variables: beta, smart beta, and alpha. Macro funds have become more flexible and reliant on smart beta to acquire excess return in recent years, especially in Asia, since most Asian macro funds are still at primary stage in size now, while world economy and geopolitics become more unstable recently. However, with those Asian funds expanding gradually and the world economic and political situation becoming more stable, I firmly believe that beta will come back as the main income-generating variable. In that case, asset allocation skills will also become more desired to a macro fund portfolio manager.