Ahead of the Curve on Chinese Securities

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A Client Message
From CEO Jeff Junior

Additional Note to Clients

From CIO Udayan Mitra, CFA

“If history could teach us anything, it would be that private property is inextricably linked with civilization.”

As many of you may be aware, certain large financial institutions – BlackRock being a representative example as noted in Bloomberg and Reuters articles recently, are likely to come under regulatory scrutiny for channeling investments to Chinese companies simply because they are part of an MSCI Global Equity index. In a similar vein, index constructors like the aforementioned MSCI are likely to be investigated for persisting with including Chinese companies that are subject to/targeted for US sanctions in their widely replicated benchmark indexes.

The reason for sanctions on several Chinese issuers includes the need to stop channeling US investor capital to companies that may pose national security risks through technology theft, as well as directing US capital away from issuers that are suspected of human rights violations in their labor policies.

To be sure, not all Chinese companies are prohibited from US investments – just those that present national security risks and those which are thought to violate human rights. That said, we at Trajan Wealth recently removed all Chinese corporate exposure from our strategies, even those obtained passively through investing in global equity ETFs. We maintain international equity exposures by investing in ex-China, Global equity ETFs, which exclude Chinese companies completely.

We have in the past communicated our view that China is un-investible due to lack of a transparent regulatory framework, and the absence of clearly defined property rights. We maintain exposure our exposure to the Chinese economy by investing in US companies that export to China and are subject to US jurisdiction from a regulatory and legal perspective.

We take our role as fiduciaries very seriously and would never invest client capital in jurisdictions that have questionable property rights, and where unelected, autocratic regimes can arbitrarily apply laws. In addition, we take painstaking care in ensuring that our investment strategies are constructed without contravening US laws and regulations.

Picture of Udayan Mitra, CFA

Udayan Mitra, CFA

Udayan is Trajan Wealth's CIO with over two decades of experience in the investment management industry. He earned a Bachelor of Science degree in Economics from the London School of Economics and an MBA in Finance from Rice University.

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