International Economics

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Blackrock investors slice Chinaeryosure Bianca Hartge-Hazelman

Australian investors are reducing their exposure Lo Chinese companies in favour of those in the United States, in another sign that markets expect China's growth to slow as strong eco- nomic fundamentals drive the US econ- omyforward.

In the year to date, investors have pulled $US300 million ($329 million) from Blackrock's iShares China A50 exchange-traded fund (ETF) , an index that tracks the top 50 shares by market capitalisation on the Shanghai or Shen- zhen Stock Exchange, amid fears over the state ofthe Chinese financial system and worries about economic growth remaining above 7 per cent. iShares is Blackrock's ETF business.

In a visit to Sydney, Blackrock's iShares head ofAsia Pacific Jane Leung said Australian institutional investors, particuiarly banks and insurers, are among those exiting emerging markets since the start of this year.

"We are seeing less interest in China globally. Many people feel that China maybe overvalued. So they have been taking money offthe table," she said.

Institutional investors have been shifting their funds to chase growth opportunities in the developed coun- tries, chiefly the United States.

"Anecdotally, our Australian clients are more interested in seeing how the Chinese economy does and how it will impact Australian mining companies," MsLeungsaid.

"There is certainly a feeling that some of the growth in China maY be slowingin the near term -butI believe inthelongterm, manyinvestorsbelieve itis a placeto invesl"

In the past month, more than $225 millionhas flowedinto *teiShares US fixed-income ETFs, $300 million

into the S&P500 equity ETF and about $300 million has found its way into Blaclcrock's European ETF products.

"In many ways, the US market has been weaker in past years and there is the belief that they will recover and havebeen recovering.

"Emerging markets had meanwhile been stronger over the past 12 months, but the sentiment has furned and inves- tors are moving into the US-exposed products," Ms Leung said.

The inflows into US ETFs are in stark contrast to what happened last year, when inflows into iShares' China- linked ETFs rose to over $1 billion, as developed economies like the US and Europe continued to show signs of StTCSS.

The appeal ofUS products thisyear has been driven by a solid run of posi- tive economic news, as weli as talk by the Federal Resewe of a possible end to the massive stimulus program which has helped to prop up the nation's financial system, which retlects strong underlying fundamentals.

Only recentlyhas the economic data out of China started to improve which suggessthattheeconomyisstabilising.

Indeed, just last week, data showed that China's industrial output and exports improved, raising hopes that thiscouldbeagoodthingforAustralian companies. ETFs are a less poPular investment vehicle for Australian retail and institutional investors compared to investors in the US. In Australia, direct equity, cash and property are still the preferred asset classes.

The Hong Kong-based Leung said iShares has $5 billion in assets under management in Australia, and hopes to grow that figure to $30 billion in the next five years. "There are a lot of areas we need to work onwith exchanges and regulators to be able to grow" she said.

Blackrock'sJaneLeungsaysinvestorfocusisnowontheUS. PHoro:SASHAWooLLEY

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