Chinese A shares - no longer just for the locals

The Morgan Stanley Capital Index (MSCI) will include China’s domestic shares (known as A shares) in its Emerging Markets (EM) Index from June 2018 which will lead to a large-scale repositioning of some $1.6 trillion in funds that track this index.

This change will make the Chinese stock market more accessible to global investors and could see as much as $210 billion flowing into China’s equities over the next five years, according to Goldman Sachs.  The MSCI EM index has selected 222 A shares, for inclusion which accounts for circa 0.7% of the index. 

To mark this move, here is our quick quiz on the Chinese domestic stock market.  (Spoiler alert - all the correct answers have the same letter - see if you can guess the right answer)   

1. How big is the Chinese A-share market?
a) $1tn
b) $4tn
c) $8tn

2. The Chinese love a punt but what percentage of turnover do domestic retail investors represent?
a) 50%
b) 65%
c) 80% 

3. In July 2015, A-shares soared and at their peak what percentage of stocks were suspended?
a) 28%
b) 40%
c) 51%

4. And how many are still suspended?
a) 2%
b) 5%
c) 8%

5. What percentage of A-share companies use international auditors such as Deloitte or KPMG?
a) 20%
b) 35%
c) 50%

6. Currently, what percentage of A shares receive a ‘buy’ rating*?
a) 62%
b) 88%
c) 97%

7. There are over 1,300 portfolio managers in China. What is their average experience in years?
a) 6 months
b) 1 year
c) 3 years

8. Is this a market we should be buying for the longer term?
a) The Chinese are nuts, never
b) In the future maybe
c) Where do I invest?

The correct answer to all these questions is....C

Sanity Check - The A-share market is still very risky, but given the opportunity set, those with the skills to navigate the pitfalls could be able to find the gold.

James Regan CFA
Investment Analyst


This document may include forward-looking statements that are based upon our current opinions, expectations and projections. Investment markets and conditions can change rapidly, and as such the views and interpretations expressed should not be taken as statements of fact, nor should they be relied upon when making investment decisions. We undertake no obligation to update or revise any forward-looking statements and actual results could differ materially from those anticipated by any forward-looking statements.

Past performance is not a guide for future performance.  The value of your investment can fall and you may not get back the amount invested.

* Source Alliance Global Investors "Introducing A shares" 

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