China’s Slammed Stocks Are Showing Signs of Recovery

China’s roller-coaster stock market continues, with some hope that it is finally on the upswing as pandemic shutdowns relent. All told, the MSCI China Index is down 15% this year, almost as bad as the S&P 500 (down 16).

Chinese stocks have had a rough time since spring, given the lockdowns, but in June they appeared to recover as some of the COVID-19 strictures were relaxed. Then this month, they dipped again, off 6% through last week, amid news about worsening real estate problems. On Monday, though, things turned around once more, as comparisons between Chinese interest rates and those in the West dominated conversations.

The People’s Bank of China, its central bank, is lowering rates, because the nation is not suffering from the inflation roiling the U.S. and Europe. In the West, the Federal Reserve and its peers are tightening, as fears abound that a recession will hit.

A research report from prominent South African investment firm RisCura notes big differences between China and the West. China, it says, “does not face the same stagflation risks as developed markets, the economy is recovering from a cyclical low, stimulus is coming through, and valuations are significantly lower than developed markets.”

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The MSCI China’s price/earnings ratio is 13, while the S&P 500’s is 20.

Welcome, perhaps, to the golden age of outsourcing. A Northern Trust study finds that the pandemic-inspired work trend has prompted a rethinking among investment managers on the value of keeping many functions in-house.

Some 60% of the respondents to the firm’s survey said the new environment has increased their likelihood of outsourcing. And of those considering farming out tasks, data management was the chief activity they wanted to fob off, at 48%. The second was back-office operations, at 44%, and the third, trade processing, at 36%.

The common thread, by Northern Trust’s analysis of the respondents’ answers, is that the outsourced activities “were not core to their business.”

As the report explains, “Outsourcing can boost cost efficiencies in areas such as data management, which can rack up high expenses for organizations. By working with an external partner that offers such services for a wide range of firms, managers realize the benefits of economies of scale.”

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Hiring outsiders to perform functions is popular in the financial world. In our 2022 Outsourced Chief Investment Officer Survey, 30% of the asset allocators who responded already did outsourcing. Northern Trust’s asset management arm is a prominent OCIO provider.

Clive Bellows, Northern Trust’s head of global fund services for Europe, the Middle East and Africa, quoted in the firm’s study, discussed what asset managers were looking for in outsourcing partners.

“First of all, managers want a provider that is getting the basics right, such as custody, fund accounting, transfer agency and so on,” he said. “They also look for a stable organization that is committed to the business, who can help them as they start moving into the more value-added areas.”

The Northern Trust survey, done by WBR Insights, polled CEOs, CIOs and other officers worldwide from financial organizations with assets over $500 billion. Of those, 16% were from the U.S. and 15% from Canada. The bulk of them, or 92%, manage equity, while 64% oversee hedge funds, 62% fixed income and 30% real estate.