These sectors are seen as the most likely beneficiaries of the government’s ongoing reforms, which are aimed at supporting the shift from an export-led economy to one based on domestic consumption.
According to Zhu, China A-shares have several attractions due to their low correlation to global equity asset classes, low foreign ownership (2% as compared to Asian market average of 20-30%) and attractive valuations after a seven-year bear market.
The much awaited Hong Kong-Shanghai stock connect pilot scheme is set to go live on 17 November, giving investors another option to access China’s onshore market apart from their qualified foreign institutional investor or renminbi qualified foreign institutional quotas.
The Shanghai exchange’s total capitalisation is $2.9trn, making it the seventh largest stock exchange in the world, just behind the HKSE, which has a capitalisation of $3.1tn. There are 982 companies listed in Shanghai while some also have a dual Hong Kong listing, which tend to be in sectors such as financials and energy.
Zhu said another linkage between Hong Kong and the smaller Shenzhen Stock Exchange, which has a market capitalisation of $1.9trn, is expected to be created over the next two years. This in turn will open up further opportunities in areas such as technology and healthcare, including Chinese traditional medicine.
China A-shares remain on the review list for inclusion in the MSCI EM index as part of the 2015 MSCI market classification review due in June 2015.
China’s pro-forma weight in the MSCI EM, should A-shares be included, is 30% as opposed to the current 18%, she said.
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Expectations are that the Shanghai market will start to have stronger performance than it has in the past three years after the Hong Kong-Shanghai stock connect launches November 17.
