For institutional side, all institutional investors are comfortable with inevitable volatility and they won't panic in front of short-term flows.
We expect the U.S. dollar to continue to strengthen against the yuan by about 10 percent. Our forecast exchange rate by September is 6.67 yuan per dollar.
Q: As one of the few economies that did not experience the global financial crash, how should China learn from the past?
Potter: Chinese economy has been excellently managed, considering the dynamic challenges it has been facing regarding population growth and its transition towards a modern economy. It's no easy task and was done pretty well.
I'm confident that it has all the tools it needs. What we see now is a transition from infrastructure-driven to now consumer-led economy. It's inevitable that some sectors will do better than others. Be patient and changes will continue.
With A-share's inclusion into the MSCI Emerging Market index, there will be inflows of institution capital. It won't necessarily be hot money, and that's what the government has always been cautious about, as the QFII started small before it rolled out.
Q: What's your advice for investors in terms of global asset allocation, given the U.S. Fed's interest rate hike?
Potter: I think there may be one more increase in 2016 of 25 basis points, but the Fed just aims to normalize the interest rate and it's important to maintain lower rate. The economy is growing, but we are not seeing any inflation taking off.
My advice to any client is to diversify your risk and understand what you are investing and invest in the long run, making sure you are patient.
Q: What will be Northern Trust's next move in the region?
Potter: We are happy with our business in China, and will stay focused on providing services for large institutional investors, and look for opportunities to expand our presence over the next 5 to 10 years.
Currently, the company manages over $875 billion assets and the vast majority is for U.S. clients, while $180 billion is for large foreign entities. We see increasing investments in the non-U.S. markets.
Northern Trust is ranked one of the top four passive managers in the world, with $500 billion assets managed in passive strategies. We have devised a whole series of sophisticated risk factor models overlooking underlying characteristics of the securities. A number of our products focus on companies of highest quality that have strong balance sheets, good liquidity and returns to capital as well as to shareholders.
The company also combines the quality with ESG (Environmental, Social and Governance) screening, focusing on sustainable companies that manage in a transparent way and are socially responsible for employees and shareholders.
Long-term investors are looking at cow-carbon emission and ESG investing as important criteria in their portfolio. And because of that, a lot of money is flowing to stocks that have strong ESG characteristics. Those stocks are likely to outperform others based on the market demand and expectation. Chinese institutional market is starting to pay attention to it too. It's well in line with the government's pledge for transparency and managing carbon footprint over the time.
