China’s A-shares market is currently facing a rapid change which is expected to make it more professional, according to the report from Aberdeen Standard Investments.
The A-shares market, which is one of the biggest equity markets in the world with a market cap of US$5.6 trillion, was expected to play a key role in China’s plans to develop its capital markets in order to help to fund the pensions of an aging population, the report said.
Secondly, investors should watch this market closely, as it traditionally reflected all major changes in the country’s economy, in particular the emergence of private sector companies which serve the needs of domestic consumers.
Also, this year would mark the end of years of isolation for this market after the inclusion of A-shares in MSCI and FTSE Russell indices, making an easier access for foreign investors
According to the report, the ample liquidity and a low correlation with other markets means A-shares provided a viable way for foreign investors to diversify their portfolio, with the short-term earnings outlook remains healthy despite slowing growth and trade war concerns “” the report said.
The report also warned investors that China was also facing new uncertainties as it was trying to balance growth and sustainability which would mean conducting business in a world that was more hostile to its goals
“Investing in A-shares may be riskier than investing in more established equity markets. But it is no more risky that investing in other emerging markets. They deserve, at the very least, careful consideration. Today, the bigger risk for investors is ignorance,” the report said.
“Should you invest in the market because the index weight is increasing? No! But you should spend the time necessary to understand the potential of the market before the index-following crowd arrives.”