China A: Are the Stars Aligning?
We believe we are having a rare moment where the stars have aligned for China: the potential flows, improving growth prospects and the still-compelling valuations make for an attractive beta opportunity, in our view.
On 1 March, MSCI announced that it was increasing the free-float inclusion factor for China A (onshore Chinese shares) from 5% to 20%, in a 3-stage implementation in June, September and December this year. This could result in a notable increase in active and passive foreign fund inflows, with estimates reaching about USD100 billion, according to Bloomberg.1
China A is the best-performing major market this year through March 5, up more than 30% in USD terms (Figure 1). As argued in a January note, we believe the headwinds China faced in 2018 have turned to tailwinds, and the fundamental opportunity in China A is attractive, even after such a big move. Indeed, some of our tactical models suggest the market is due some correction/consolidation, which could open a compelling window.
China A is a particularly fertile environment, in our view, as there are inefficiencies in liquid stocks and we feel there are a wealth of conservatively-run, organically growing, cheap businesses. In principle, we believe this is an attractive alpha investment opportunity.
We believe we are having a rare moment where the stars have aligned for China A: the potential flows, improving growth prospects and the still-compelling valuations make for an attractive beta opportunity, in our view.
Figure 1. China the Best-Performing Major Market in 2019
Source: Bloomberg; between 1 January 2019 and 5 March 2019.Download full article
Opinions expressed are those of the author and may not be shared by all personnel of Man Group plc (‘Man’). These opinions are subject to change without notice, are for information purposes only and do not constitute an offer or invitation to make an investment in any financial instrument or in any product to which the Company and/or its affiliates provides investment advisory or any other financial services. Any organisations, financial instrument or products described in this material are mentioned for reference purposes only which should not be considered a recommendation for their purchase or sale. Neither the Company nor the authors shall be liable to any person for any action taken on the basis of the information provided. Some statements contained in this material concerning goals, strategies, outlook or other non-historical matters may be forward-looking statements and are based on current indicators and expectations. These forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update or revise any forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements. The Company and/or its affiliates may or may not have a position in any financial instrument mentioned and may or may not be actively trading in any such securities. This material is proprietary information of the Company and its affiliates and may not be reproduced or otherwise disseminated in whole or in part without prior written consent from the Company. The Company believes the content to be accurate. However accuracy is not warranted or guaranteed. The Company does not assume any liability in the case of incorrectly reported or incomplete information. Unless stated otherwise all information is provided by the Company. Past performance is not indicative of future results.