When President Mokgweetsi Masisi's entourage land in Beijing next month (September) to thaw strained diplomatic relations with the Xi Jinping administration ahead of the 2018 China-Africa Forum (FOCAC) they will discover that Botswana Public Officers Pension Fund (BPOPF) have long scoured the market for opportunities.
As part of a strategy to grow the P62 billion Fund, Principal Officer Boitumelo Johnson told journalist recently that they are surging ahead with exploring China and other African markets for new opportunities. Still smarting from investment blunders that exposed the Fund to huge risks, which threaten to gobble millions of pula from pensioners' coffers, she said they will aproach with caution in the diversification of investment portfolio under the new Investment Policy Statement (IPS). "We are working on a new IPS to guide us going forward. Under the new asset liability model we will be cautious to avoid pitfalls," she said, without giving away too much information. But it is an open secret that BPOPF is desperate to put behind controversial investments of the past which ended horribly, among them Capital Management Botswana (CMB) of the BOP equity scandal, Kgori Capital of the National Petroleum Fund (NPF) saga and Flemming Asset Management of the Hilton Garden Inn investment.
BPOPF is eager to invest in China and African equities. The uniqueness of the Chinese market excites Johnson and she is salivating at its limited shares put up at the Hong Kong Stock Exchange for external investment. With a glitter in her eyes, she explains that such gesture is a clear indication that the Chinese market is being liberated and opening up opportunities to the world unlike what used to obtain in the second biggest economy in the world. But Johnson is not naive to risks, and is quick to declare that they will approach the complex Chinese equity space with caution, engaging only reputable and experienced asset managers with extensive experience.
The Patriot on Sunday has turned up information showing that BPOPF has been very busy studying China financial services market, and has through their investment consultants -Riscura Solutions - produced a comprehensive report that will guide their approach. Johnson waxes lyrical about immense potential held by the economic giant and looks determined to steer the BPOPF ship towards hitherto unchartered waters. Such excitement is not unfounded. China has for a long time been an outsized player on the global stage, and over the last 20 years its economic role has increased meaningfully. The country has progressed from contributing around 2% of global GDP to almost 15% resulting in it becoming a powerhouse in the global economy. At the same time it has become increasingly outward looking.
Riscura Solutions note that it has only been in recent years that China stock market has become of interest to foreign investors. China is the world's second largest stock market with 3 000 companies on main land (A-shares) and 1 000 listed in Hong Kong and elsewhere. Mainland companies have an estimated market capitalisation of $8 trillion and zero weighting in MSCI Global EM. This is changing with 5% of market capitalisation introduction of MSCI Global EM of only the largest 222 listed stocks in June 2018. Without restrictions China would be 40% of Golbal EM, with some of the largest and fastest growing companies in the world.
With the foregoing, Riscura Solutions has advised BPOPF that: "As the world's most populous country opens up to foreign equity, and as inclusion in major indices starts to occur, it has become critical to take note of the risks and opportunities. Through Stock Connect, foreign access has become significantly easier, and in 2018 MSCI has become satisfied that a small inclusion of A-shares in its indices is appropriate. It seems like the level of inclusion will happen rapidly over the coming years, and with an annual initial public Offering (IPO) rate of circa 500 companies, this market is only going to make more and more of an impact. As non Chinese investors it is therefore imperative to prepare for this shift, and to start preparing international portfolios for this change. China's equity market is too big to ignore, and if anything will only continue to grow".
Through a dossier presented to BPOPF following the most recent research visit to the Asian Tiger in May 2018, Riscura sets out the rationale for investing in China, describes the Chinese equity market, approach in selecting investment managers and then options to implement the allocation of global strategic equity. The consultants' China investment thesis has been reinforced and enriched by the finding that the potential to participate in Chinese growth is an unprecedented opportunity for any global investor. "Of greater importance is that the much publicised narrative of Naspers, Tencent and Alibaba limits the sheer breadth of the investment opportunity," quips Riscura, deliberately to wet the appetite of the welll resourced pension Fund.