Investing in China’s securities markets with UBS

My name is Tommy Fang, Head of UBS, China Capital Markets. Before I go to some of the questions you have, I wanted to share with you what my key views in terms of the golden decades starting from 2016 and the 3 key opportunities for Chinese capital markets. The first being internationalization. Second, institutionalization. Third, innovation. In terms of internationalisation, there're actually two parts. One is with the growing wealth of China more and more domestic investor will need to allocate assets globally. Currently it is relatively constrained by the overall access into the global markets through quota, but this opportunity will come. The focus in the pass two, three years has been global investors accessing to China. Compared to 2015, the overall foreign ownership into the China A-Share stock market has quadrupled from roughly about 2% to 8% in terms of overall free flow. If you look at the turnover, last week's MSL re-balance account for the highest turnover day. We're stuck in account for 20% of the overall Asia toll. But 8% or 20% is still a start. There is a long way to go in my view from global investors accessing into China. Our analysts put up a report last year, analyzing the overall mutual fund industry in China will grow roughly in terms of AUM around two trillion USD as of last year, to 7 half trillion by 2025. 15% annual growth was a potential fee pool of 40 billion US dollars. Our estimate is among the overall fee pool and also AUM growth. 25% could be from global institutional investors. Huge opportunity again! In terms of innovation, China is the 2nd largest in terms of overall unicom and provide huge investment opportunities from innovation. And also China produces annually about 3 to 5 million in terms of STEM graduates versus US produced roughly about 500,000. So this, innovation posts from the investment perspective and also from talent perspective will also create opportunity for Chinese Capital Markets. In terms of the overall regulatory regime for Chinese financial industry. I've been interacting with Chinese policymakers for over a decade and really the recent 18 months. It is very consistent in terms of the overall regulators' view on inclusion and also financial opening up. So I would say the key reason behind this is first China's slowdown in terms of overall growth, so they're really making an effort to change from bank loan led financing growth to capital market led, really market-driven growth. So that requires very healthy capital markets. And also second, with the geopolitical environment, China is very careful in terms of not to de-couple with the developed financial market so therefore there are a lot of financial reforms and also aiming to include and invite global leading financial players into China to really modernize the capital markets in China. In terms of when to enter into China, this is definitely a billion dollar question. My senior advisor in China has once pointed out, what does PRC stands for? People's Republic of China? And actually, his point was, for global players enter into China, it (PRC) is stand for: P for patience, R for relation and C for commitments. So it is very hard to time the best timing if you were to enter into China. But if you look at the overall landscape in terms of financial reform and the willingness and the readiness for China to open up to the global financial players, I would say invest into China, the risk is so much less than not investing into China at the moment. In terms of the overall investors landscape in China, you're definitely right. There are two leading sovereign wealth funds operate at a global standard, but there are growing institutional investors especially, for example insurance industry. Most of them are really looking at and transforming from manage their own money to hire external managers. So obviously for foreign investor you need to acquire advisory license. It takes some time and resources and effort. But that's a road map to lead to that group of investors. And besides that, yes, retail investor high net worth individual. Very large component of the investor base. So you would need to rely on different distribution sources. So so far I think the bank has been the most powerful network and the UBS are building wealth management presence both under the securities license and also in the bank license. There are also other new channels in terms of electronic platforms and also different fintech platforms, so those are the things I think we should closely watch for as well. In conclusion, I just wanted to share with you 2 messages, one in terms of what we are looking for into the next step of regulatory change or development, and the second is a little bit of UBS China in terms of the overall regulatory landscape. So as I mentioned the past 18 months have been a very busy new policies and new relaxation opening, especially to global investor communities. and I would expect 2020 would be a critical year for really executing those plans. So for example, the fully owner fully foreign owned mutual fund will be expected to launch as early as April and for security companies. You know the full ownership will also start from December next year. And we're definitely looking forward to the announcement of QFII relaxation and rules which was consulted early part of this year. This way enables global investor to access onshore commodities market more freely and also access for the onshore index hedging and also stop borrowing and lending which is very important hedging tool for different strategies into China. In terms of UBS, so very very glad to report to you that UBS from a QFII point of view, back in 2002 we were the first and still one of the largest QFII investor into China. So that really give us the presence and a first mover advantage in terms of the overall capital markets access into China. So right now we have 7 legal entities with 1200 employees in China. Under UBS-S, which is the unique full license, investment bank platform. We have more than 350 full-time employees. Among those, 150 are for the global markets, both from the research and also advisory execution, derivatives and financing side. So we have people underground interacting with the local regulators, the policymakers, the exchange industry experts, companies, domestic clients and also investor space on a daily basis We hope with those unique local expertise. and also a global standard, we can be your strategic partner in China.