CPPIB CEO looking to grow China exposure despite trade uncertainty with U.S.
The head of the Canada Pension Plan Investment Board said he is looking to increase the investment manager’s exposure to China, despite how the country’s uncertain trade relationship with the U.S. is weighing on global markets.
“There are two main reasons we invest in China,” CPPIB President and CEO Mark Machin told BNN Bloomberg’s Amanda Lang in an interview Thursday. “The first is diversification, and China today is the second-largest capital market in the world so it offers a huge opportunity for diversification. We have access to most of, if not all of that market, whether it’s public, or private, or equity or debt.”
“And then the second thing is an opportunity for alpha, or outperformance, relative to the markets,” he added, noting the equity market in China is heavily retail-driven, and therefore prone to short-term, rumour-driven trading. “For a fundamental, long-term investor who is prepared to do the work, it can offer very significant opportunities for outperformance.”
“Those two theses and opportunities, they still exist today and we are happy to sort of carefully and prudently increase our exposure over the long term.”
CPPIB began investing in China over 10 years ago, Machin noted, as it opened its first international office in Hong Kong in 2008.
Machin said just over eight per cent of CPPIB’s portfolio is invested in China, with a stake in corporate giants like Alibaba Group Holding Ltd., which Machin said has been a “terrific investment.” CPPIB’s greatest exposure is to the U.S. where 35 to 40 per cent of its portfolio is invested.
While Machin is looking to increase CPPIB’s exposure to China, he acknowledged the uncertainty between the world’s second-largest economy and the U.S. is creating a ripple effect globally.
“It’s not just trade, it’s a broader range of issues,” Machin said. “And as those two economies are negotiating with each other and dealing with each other, they are both slowing down as sort of the first-order effects of the friction between the two, and then that’s spilling over to just about every other economy and market in the world.”
The U.S. and China are said to have made little progress so far during closed-door trade talks in Beijing this week, as the two sides have failed to narrow the gap around structural reforms to China’s economy that the U.S. has requested, while both countries seek to avoid an increase in tariffs after March 1.
“Resolving that will be terrific for the world,” Machin said.
Machin’s comments come as the CPPIB said it was able to overcome a general downturn on stock markets near the end of last year to post a 1.1 per cent return in its third quarter.