It's little over a year ago that that I almost choked on my coffee when I read in the FT that Blackrock, one of the world’s largest asset managers, was recommending investors to increase their allocation to Chinese equities and bonds. This wasn’t because I thought this was a bad investment, per se, The comment by Wei Li, chief investment strategist at Blackrock, that Chinese assets are under-represented in portfolios given the relative size of China’s financial market is probably true. More interestingly, in a world where (some) economists are worried about the imbalanced trade relationship between the US and China—due mainly to subdued Chinese domestic demand and excessive savings—a reversal in capital flows between the world’s major economies is exactly what the doctor ordered. This is especially the case if, as is customarily hoped, it coincides with a liberalisation of and the opening of China’s capital account, and more freely floating CNY.
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