Investors 'can't ignore China' even with rising geopolitical risk, pension fund managers say

Published Wed, Sep 28 20221:19 PM EDTUpdated Wed, Sep 28 20222:37 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Long-term investors can't afford to miss out on China's growth, even as geopolitical risks have become a growing concern for markets in 2022, two top pension fund managers said at CNBC's Delivering Alpha conference Wednesday. Russia's invasion of Ukraine has rocked markets this year, especially for those investors who had exposure to Russian debt or equities. Sanctions from Western nations effectively halted trading for Russia-linked stocks and created questions about whether even the country's sovereign debt was in default. That war served to highlight the risk surrounding China's tense relationship with Taiwan, causing investors to worry about how similar sanctions on Beijing would affect global markets. Many investors were already wary of investing in China after the country placed new restrictions on its technology companies and U.S. regulators have pushed for greater accounting transparency for firms with listings in America. However, the leaders of two major pension funds told CNBC's Melissa Lee that China was too important for global markets to avoid. "Russia is small. It's a huge energy power with nukes, so it's important from that perspective. But it's not connected to the world in other ways," said Anastasia Titarchuk, the chief investment officer for the New York State Common Retirement Fund. "China is different. I think you cannot ignore China." "Corporations cannot ignore China, investors cannot ignore China, because if you want to ignore China, you also are going to ignore all the partners that China has." Titarchuk said her portfolio does have exposure to China, albeit underweight relative to global indexes. The New York state fund reported a value of $246.3 billion at the end of June. Edwin Cass, chief investment officer of the Canada Pension Plan, agreed that China was simply too important to the global economy to be shunned by investors. "China right now is 20% of global GDP, probably going to 25% of global GDP by 2035. And as Anastasia mentions, you can't ignore China if you're trying to understand global growth and you're trying to understand global markets," Cass said. "Most investors probably aren't comfortable betting proportionally to GDP, for reasons like liquidity. You probably haircut your allocation because of liquidity. You haircut your allocation because of geopolitical risk." Cass said his organization has a 10% allocation to China because of those risks. Canada Pension Plan reported more than 500 billion Canadian dollars in net assets at the end of June, or nearly $400 billion in U.S. dollars. "I think it's a question we'll continue to struggle with and others will continue to struggle with over time," he added.