The SIX Swiss Exchange is an interesting opportunity for Chinese companies and global investors
Four Chinese companies issued GDRs in Switzerland through the China-Switzerland Stock Connect program in July 2022 after China Securities Regulatory Commission (CSRC) reformed its Stock Connect program and the SIX Swiss Exchange revised its listing rules. About $1.6bn of combined capital was raised through GDRs on the SIX Swiss exchange.
This series of key events have caught GMG’s attention. In September 2021, we wrote about the Geopolitical shifts towards multipolarity and that “Swiss companies are well placed to benefit from mounting political stress”. This had become most evident in the US and NATO, where the China relationship is increasingly strained (see our report: NATO 2.0 is disrupting markets worldwide, Eurozone investors should take note.)
This latest event has broad implications for the Swiss market and suggests the beginning of a wave of A-listed firms looking to trade global depository receipts (GDRs) in Switzerland. As a Swiss investor with direct exposure to the local market, we closely follow events that make our investment universe wider. We also emphasize the need to perform adequate due diligence regarding issuer quality and the motives behind these listings. Newly listed companies and prospects include strategic industries such as new energy, battery component, advanced materials, and pharmaceutical. Switzerland is an attractive place for Chinese firms with practical regulations, brand recognition potential, and access to a large pool of international investors. In such a context, it can lead to several success stories upon local standards being upheld.
At GMG, our strategy begins with a top-down macro and geopolitical deconstruct. We are forward-looking, and we usually pay early attention to these new trends that emerge from the changing environments as we want to position our portfolios for how we believe the business cycle will evolve. For example, last year, we identified a list of Swiss companies with revenue exposure to China on the belief that selective Swiss companies are well placed to benefit from increased political stress between China and NATO member countries, while Swiss-China relations remain strong.
In the broader context, we think that China is increasingly becoming a central point of focus amid the challenging global macro backdrop and geopolitical environment. By unleashing enormous stimulus in the past, it has helped the world weather grave downturns and generated a significant debt overhang for its banks and state-owned companies.
This reflects over a decade of growing reliance on growth on non-productive investment and worsening domestic imbalance that policymakers in Beijing are trying to address. Policy actions have highlighted the consciousness of authorities that this growth policy that worked well in the past needs to adjust to a new local and global landscape. However, recent news flows suggest some confusion about what China must do to address the economic slowdown, leaving the world economy on the edge of what new policy actions may follow. The 20th National Congress of the Chinese Communist Party in October is a crucial meeting that will be especially closely watched because Xi Jinping, the party’s top leader, is widely expected to break with recent precedent and hold his position for a third five-year term.
The idea that Beijing is pivoting away from old-fashioned infrastructure spending (buildings, bridges, railway lines) towards new types of public-works projects and infrastructure is raising interest in strategic high-tech sectors. There is a need for successful businesses to broaden the shareholder structure and continue an internationalization strategy, which has become more challenged by the intensifying US regulatory scrutiny on Chinese American depositary receipts (ADRs) as well as the deterioration of Hong Kong’s IPO market. Swiss neutrality and a stable political environment offer some serenity to the talented pool of business leaders looking for an acceptable level of playing field on the global scene.
The information provided herein constitutes marketing material, that may contain general information, and has been prepared by personnel in the GMG Investment Solutions SA or GMG Institutional Asset Management SA (collectively “GMG”) and is not based on a consideration of the prospect’s circumstances. This document reflects the sole opinion of GMG or any entity of the GMG Group and it may contains generic recommendation.
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