Alternatives

China A-Shares: Issues for Investors to Address

Assessing the Opportunity in Chinese Equities
clock
1 min 33 sec

It is no secret that China is becoming an important market for global investors. Major index providers are increasing the proportion and types of Chinese shares in their indices, and investment managers are launching strategies to take advantage of this growing market.

With the inclusion of China A-shares (i.e., ownership stakes in Chinese companies that trade on the Shanghai and Shenzhen stock exchanges and are quoted in renminbi) into a family of MSCI global and regional indexes including the MSCI Emerging Markets Index, investors are compelled to recognize the significance of this investment opportunity. China’s equity market is the second-largest in the world, measured by market value, and has grown rapidly since it opened in 1991. There are over 4,000 publicly traded Chinese securities with total market capitalization in excess of $12 trillion. And many of these companies are positioned to benefit from a burgeoning Chinese middle class, which is expected to reach over 350 million by 2030, according to the Brookings Institution.

An allocation to China A-shares may provide benefits in the form of competitive long-term returns and low correlation to other equity markets. It is important to note that there are unique structural challenges with investing in China’s onshore equity market. These include significant market volatility, unfavorable capital structures (i.e., capital controls, trading suspensions, etc.), poor corporate governance, and inconsistent application of the rule of law.

The China A-shares market is currently dominated by retail investors. However, the institutionalization of the market as China continues to open to foreign investors will ultimately shift the composition of the investor base from retail to institutional.

As a result, access to China A-shares creates new opportunities for active investment managers to exploit and participate in the transition of the Chinese economy toward a services-led model.

For more on this issue, readers are invited to review my white paper, China A-Shares: Key Issues for Investors to Consider.

12$

The market value, in trilions, of the over 4,000 publicly traded Chinese securities in the A-shares market.

Callan College banner

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Public Markets

How Investors Should Respond to Evergrande and China’s Regulatory Crackdown

Fanglue Zhou
Fanglue Zhou analyzes how China's recent challenges impact institutional investors' emerging market allocations.
Operations

Three Potential Paths to a China A-Shares Allocation

Global Manager Research
We discuss three paths to implementing a China A-shares allocation.
Public Markets

Local Presence for Multinational Managers Invested in China – Key Takeaways

Fanglue Zhou
Public Markets

Stocks and Bonds Lifted by Rate Cut Optimism

Kristin Bradbury
Private Markets

MLPs Keep Tax-Favored Status Under New Law

Callan Institute
Public Markets

U.S. Fixed Income: Up, Up, and Away

Callan Institute

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.