Clarion call unheeded

2014/12/2

From：Macau Business Daily

It’s pledged to do so many times. Diversify its investment portfolio. International institutions and luminaries have strongly advised it to do so. But the Monetary Authority of Macau is smitten with China.

Macau continues to put the profits of its booming economy into China, choosing not to diversify its investments in other destinations in order to reduce the impact of an economic downturn in China. Despite several warnings from major institutions and economists, Macau continues to increase its exposure to the Mainland with the territory’s investment in Chinese assets reaching an all-time high, and with no signs of slowing down.
Today, almost 50 per cent of all financial investment conducted by the government – and residents here – is in Chinese financial products, ranging from bonds to equities, official data revealed. Three years ago, the share was only 35 per cent.
The demands for diversification are not exclusively with regard to the economy. If Macau has to go beyond the gaming industry to reduce its exposure to casinos, in terms of its financial investments, the territory has to go beyond China.
The latest data from the Monetary Authority of Macau (AMCM) reveals that 47.5 per cent of all financial investment undertaken by the government and residents as at the end of June was in assets from the Mainland, an all-time record. A year ago, the share was 41.5 per cent. AMCM data reveals that government and residents are buying bonds and equities from China like never before.

Not all eggs in same basket

The growing financial exposure of Macau to the Mainland has been noted by several institutions this year, especially now that the Chinese economy continues to weaken and the banking sector struggles with less credit and more debts likely to remain unpaid.
The International Monetary Fund recommended financial diversification by the government in May, following the first visit of the institution to Macau in 15 years. The same was said by the world’s biggest rating agencies, like Fitch and Moody’s, just last week, and the 2003 Nobel Prizewinner for Economics, Robert Engle, recently delivered a lecture here underscoring the fact that Macau has to diversify its investments to reduce its risk of an economic downturn in China.
The government has said on several occasions that it’s investing more in other destinations but the reality it that China is increasingly soaking up all of Macau’s investments.
For example, investment in long-term bonds, an investment done mainly by the government and that accounts for 55 percent of all Macau’s financial applications is dominated by China. At the end of June, 70 per cent of all long-term bonds bought by Macau were Chinese. According to AMCM, the government here had MOP161 billion invested in Chinese bonds until the end of June of this year. That’s a 13 per cent increase from a year ago.
Even investment in equities, like stocks, has seen a growth of Chinese presence at the expense of Hong Kong, a per se investment destination in terms of these financial products. The Macau Government and residents invested 1.3 per cent more in Chinese equities in the last year (from June 2013 to June 2014 ) and 20 per cent less in Hong Kong equities.
Today, China is responsible for 15 per cent of all investment by Macau in equities (Hong Kong has a share of 50 percent) but this figure is likely to increase as the new link between the Hong Kong and Shanghai stock exchanges make it easier for Macau residents to buy shares from Mainland companies.
AMCM’s portfolio investment report also reveals that investment in financial products by locals and authorities in Chinese assets are growing almost two times faster than the average. At the end of the first half of this year, the investment in mainland assets increased 10.8 per cent compared to a year ago, while total investment jumped 6.6 per cent.
As Macau buys more and more financial assets from China – from stocks to bonds – the territory is also increasing its exposure to the Mainland and its financial risk. If China’s economy slows more than expected o

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