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China’s inclusion in MSCI indices: manager views

Fund managers share their views on how they can benefit from the opening of the A-Shares market

MSCI

MSCI said Tuesday that 234 China A shares will be partially included in the MSCI China Index as well as relevant global and regional composite indexes, such as the MSCI Emerging Markets Index.

Following an index review ahead of China’s inclusion in MSCI indices, there will be 11 additions to and nine deletions from the MSCI China A Inclusion Index, which result in 234 index constituents.

The MSCI China A Inclusion Index is designed to represent the performance of China A shares included in the MSCI China Index.

The China A-shares will represent an aggregate weights of 1.26% and 0.39%, respectively, in the MSCI China Index and the MSCI Emerging Markets Index at 2.5% partial inclusion factor.  

Three fund managers tell us how they can benefit from the opening of the A-Shares market. 

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MSCI

MSCI said Tuesday that 234 China A shares will be partially included in the MSCI China Index as well as relevant global and regional composite indexes, such as the MSCI Emerging Markets Index.

Following an index review ahead of China’s inclusion in MSCI indices, there will be 11 additions to and nine deletions from the MSCI China A Inclusion Index, which result in 234 index constituents.

The MSCI China A Inclusion Index is designed to represent the performance of China A shares included in the MSCI China Index.

The China A-shares will represent an aggregate weights of 1.26% and 0.39%, respectively, in the MSCI China Index and the MSCI Emerging Markets Index at 2.5% partial inclusion factor.  

Three fund managers tell us how they can benefit from the opening of the A-Shares market. 

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Irmak Surenkok
Portfolio specialist
T. Rowe Price

The initial impact of the inclusion of China A-share stocks is expected to be limited, given some of the large cap A-shares are already widely owned by foreign investors.

China’s domestic market is still dominated by local retail investors with foreign participation in A-shares still very modest at little over 2% as of March 2018, compared to close to 40%  foreign participation in other North Asian markets such as Taiwan and Korea.

The opportunity set is immense with the MSCI China-A onshore market constituents totalling 753 stocks.

While many investors focus on top-down indicators such as GDP growth or the debt burden, in our view, it is the underlying bottom-up opportunities that illustrate how compelling and still under-appreciated the China investment story is.

At present, we see compelling opportunities in various consumption categories, technology and healthcare and focus on companies with under-appreciated free cash flow growth within China’s domestic market.

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Citywire A-rated Raymond Ma
Portfolio manager
Fidelity International

The inclusion of A-shares into the MSCI emerging markets index will have a positive impact on sectors that are already benefiting from long-term structural trends in China.

I am most constructive on consumer, information technology and industrials sectors after the MSCI inclusion.

These sectors are likely to deliver sustainable and solid growth in the next three to five years, given the ongoing consumption and industrial upgrading in China.

We expect them to outperform in the medium to long term.

 

 

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Citywire + rated Howard Wang
Head of greater China equities
J.P. Morgan Asset Management

The opening of the A-Shares market has effectively more than doubled our investment opportunity set.

We are more focused on innovative privately managed companies, which are often listed on the Shenzhen rather than the Shanghai exchange.

With long overdue structural adjustments domestically coming to fruition in China in 2018 - whether it be curbing credit growth or enforcing environmental controls - , the outlook for the year ahead is promising.

The ‘new’ China businesses should continue their earnings growth and counter the narrative of a potential hard landing.

 

 

 

 

 

 

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Related Fund Managers

Raymond Ma
Raymond Ma
19/88 in Equity - Greater China (Performance over 3 years) Average Total Return: 25.84%
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22/88 in Equity - Greater China (Performance over 3 years) Average Total Return: 23.91%
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