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.