A discretionary asset class not too long ago, investors are facing increasingly little choice other than to look at China – whether it is through public or private markets, according to JP Morgan Asset Management (JPMAM).
Beijing has been enticing foreign investment – and stability – into the equity market by offering greater ease of access amid a protracted trade war with the US and a second quarter that marked its slowest pace of economic growth since 1992 (6.2%).
As China looks to attract foreign participation, both its A-share and private equity market give investors access to high-quality companies operating in areas of structural growth, such as affluent consumers, an ageing population and technological innovation, JPMAM said in its portfolio insights for July 2019.
“For A-shares specifically, there are a number of extremely interesting companies that are now becoming available,” Alex Treves, an investment specialist at JPMAM, told Funds Global Asia
“Different investors will have a different range of assets and liability profile so whether China deserves to be a standalone asset class will depend by customer. We are seeing an increasing number of companies with the right business models servicing the right structural trends,” he added.
While China’s economic growth has slowed, there is still scope for foreign investors to capture structural growth in the consumer, healthcare and IT sectors.
“The opportunity for international investors to capture some of these developments comes thanks to the opening of the A-share market, a broad and liquid set of higher quality domestic (onshore) companies previously available only to locals and sophisticated institutions,” JPMAM notes in its portfolio insights. “Because the A-share market has been relatively uncorrelated to offshore China equities and other major asset classes globally, it can provide the further benefit of diversification.”
MSCI’s decision to quadruple the weighting of China’s A-shares to 20% in its emerging markets index is expected to give China’s domestic stocks a weighting of 3% to 4% of the MSCI EM index by the end of the year. As China continues to open, JPMAM estimates this could rise to 15%.
“Given our view of their quality, and of the structural growth underlying many of these newly available stocks, we believe it makes sense to gain exposure early rather than waiting for the index to catch up over time,” said JPMAM.
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