Making sense of Belt and Road – The private bank CIO: Credit Suisse
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To John Woods, chief investment officer for Credit Suisse Private Bank in Asia, Belt and Road is a megatrend: one of those overarching themes that play out over many decades. His job is to translate that into an investable form for high net-worth clients.
“The direct benefits
will obviously come to China in the form of trade flows, enhanced
economic ties with a number of trading partners,” he says. “All of this
is supportive of underlying economic growth and makes China a more
diverse investment location.”
There will be indirect benefits as
well, he says, including greater legal transparency and policy
coordination. “These are very important from a private investment
perspective, and this will all lead to greater comfort by investors in
That is the macro outlook. But which sectors benefit
and when? “There’s essentially a sequence,” Woods says. “It impacts
commodity-related sectors first, then more value-added areas. So,
construction, goods and services, transport, building materials, capital
goods will come first.
“After that, investors will be looking
for implications on the consumer side, benefiting from this huge inflow
of trade, pushing down prices, improving choices.”
consequences for the currency too, which will have implications for
investors. “Belt and Road does accelerate the globalization of the
renminbi and that opens up investable choices for clients,” says Woods.
He sees Belt and Road as assisting with the process of
internationalization of bonds and shares in China, and improving access.
a very, very fascinating experiment the Chinese are carrying out,”
Woods adds. “Essentially what they are doing is internationalizing the
renminbi first and converting it second – which is unheard of. This
journey will not be without its pitfalls and challenges. But I think we
will get a better pallet of investable opportunities due to
Groups like Credit Suisse are advising
people with sufficient capital that they can likely meet the ticket size
to invest directly in infrastructure, or at least into private
investment vehicles targeted at infrastructure, potentially including
Belt and Road. “It’s almost inconceivable that this will all be done
with public funds; inevitably we will need to see some private
investment,” Woods says.
John Woods, Credit Suisse Private Bank
“A valid criticism of the
infrastructure investment theme is that intuitively everyone realizes it
makes sense, but practically it is difficult to invest in, mainly
because it is so closely held by multilateral or public bodies.
will private capital be involved? Yes, absolutely. Will it commence
immediately in the first wave of liquidity? I suspect not.”
Only when the whole initiative gains traction will private funds follow.
What sort of time frame do investors need to be thinking of for Belt and Road?
Such is the scale of the projects and the investment size being talked
about, it has to be a multi-decade investment theme,” Wood says.
“You could probably start working on these projects and retire and still not see it completed.”
potential investment opportunity will be through the large amount of
bond issuance that is likely to be needed for these projects. “As a
consequence, China’s US dollar-denominated credit universe, which is
already huge within Asia, will become huge globally,” Woods says.
finance is the only natural way these types of projects can be funded
effectively. With this initiative, China’s US dollar debt market
explodes in size.”
And will that be an attractive asset class? “If it’s priced accurately, absolutely.”