Beyond the China A shares hype

As major indices increasingly broaden accessibility to Chinese equities, one emerging markets specialist argues investing in the country goes beyond index inclusion.

The landmark move by MSCI last year opened the floodgates to the once-difficult-to-access Chinese equity market.

In May 2019, it increased the inclusion factor of all China A large cap stocks from 5% to 10%, and will further increase its exposure in 5% increments over August and November.

FTSE Russell completed the first phase of its inclusion in June in which 5.5% of its emerging market index comprised China A shares.

J.P. Morgan emerging markets and Asia Pacific equities investment specialist, Alexander Treves, says China continues to open up investment opportunities irrespective of the indices' constituents.

A little known fact is that China has a substantial, domestic listed condiments market that's flourishing in isolation from trade tensions, he told a recent media briefing.

In the 1990s, early listed companies typically operated in the toll roads, telcos and energy industries that were government owned with the purpose of building China's infrastructure, he said, noting this was a period Australia's export sector greatly benefitted from.

Between 1999 and now, China became the biggest market in Asia in "record-breaking time." Here is a communist country with more listed firms than a capitalist structure like the US, he said.

Despite large public companies gaining most of the attention, Treves is also seeing Chinese private firms experiencing strong growth.

China has gone from making cheap technology for rich consumers elsewhere to a place that manufactures world-leading technology increasingly for domestic consumption and not just for overseas consumption, he said.

But investing in Asia is not just about China, Hong Kong-based Treves pointed out.

ASEAN, which includes Vietnam, Indonesia, Thailand and the Philippines, is the third most populous region and the sixth largest economy in aggregate.

Even before the trade tensions began, many corporations were relocating manufacturing operations to South East Asia as China became less cheap to do business. The trade tensions have only accelerated this process, Treves said.

Read more: Alexander TrevesFTSE RussellJ.P. MorganMSCI
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