Investor interest increasing for ignored A-shares
Interest in Chinese A-shares is likely to increase as their weighting in the MSCI Emerging Markets index increases to 20%.
A-shares, which are domestic China stocks outside of Hong Kong, were first included at a 5% weighting in the main MSCI Emerging Markets in 2018 and were increased in two phases last year to 20%. This brought the total China allocation within the index to more than 40%.
The Chinese A-share market was the second-largest stockmarket in the world behind the US market.
Victoria Mio, portfolio manager and chief investment officer for China at Robeco, said prior to the shares inclusion in MSCI indices, they had been unknown by international investors.
“Chinese A-shares are largely shunned by investors- often for reasons of perception. As China now emerges more quickly from the COVID-19 slowdowns than other nations, and remains ones of the few countries showing economic growth, the tide may be turning for investor interest in mainland stocks.
“The central bank printing has more money on the monetary policy has been more restrained- the stimulus is more on the fiscal side. This means it won’t add to the credit bubble and we don’t think there will be a major setback.”
While there was the possibility of full inclusion of A-shares in the future, this would depend on actions taken by the Chinese regulator regarding disclosure and transparency.
She said there were several sectors of the Chinese market which were likely to fare well this year despite the pandemic. These were e-commerce companies, healthcare companies and construction ones benefitting from increased infrastructure.
“There are lots of stocks you can choose from. For the companies that haven’t done so well, there is a consolidator in each sector engaged in industry consolidation during the hard times. Maybe the smaller ones will get bought or they may need to find someone to merge with to survive.
“And don’t forget companies such as consumer staples which were not affected at all. It’s only really the companies in the discretionary consumer space involved in tourism, restaurant, retailers that got hit. They are facing an L-shaped recovery and so we have reduced our exposure to them.”
Performance of MSCI China versus MSCI Emerging Markets since start of the year to 31 July 2020
AUTHOR
Laura Dew
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