Investors could have extreme perception of the attractiveness and risk when it comes to investing in the Belt and Road initiative (BRI), according to Invesco’ Ken Hu.
‘We find that some investors may be at extremes of either blindly expecting China’s BRI to be positive to all countries along the BRI or exaggerating negative news to the BRI long-term nature,’ the Asia Pacific chief investment officer told Citywire Asia.
These misconceptions about Belt and Road investing is the biggest risk that Invesco is monitoring, Hu, who manages the Invesco Belt and Road bond fund said.
The Invesco Belt and Road fund, which was launched in March, invests in bonds issued by corporates and governments that directly or indirectly benefit from increasing direct investment capital from China.
The fund is available to accredited investors in Singapore and professional investors in Hong Kong.
Citing an example, Hu said some investors believe China’s foreign direct investments (FDI) will lead to debt traps for some countries along the Belt and Road.
That might not be necessarily true, however. Increasing FDI from China could sometimes help improve credit profile of a country.
Mongolia is a case in point. Fitch, for example, has upgraded the rating of Mongolia’s sovereign credit from B- to B in July.
In addition, the cancellation or suspension of some Belt and Road projects in Malaysia is taken positively by Invesco, Hu said, adding that he expects this to improve the country’s fiscal balances and external debt positions.
‘We are looking for opportunities to increase weighting of Malaysia,’ Hu said.
He added that top government officials of both Malaysia and China continue to keep good diplomatic relations between the two countries after the project cancellation or suspension points to long-term vision of China’s BRI.
The US, UK and Japan are expected to increase their investments in countries that form part of the China’s BRI such as Africa, Asean countries, India and Mongolia.
These selective recipient countries will benefit, being positive for their government and corporate bonds in the long run, according to Hu.