The Case for Chinese Equities: A Shares Inclusion Update


  • We are constructive on Chinese equities despite tensions over trade. We see protectionist threats as largely negotiating tactics, while Chinese reforms, a stable growth environment and a solid earnings outlook support equities.
  • MSCI’s A-Shares inclusion will begin in June 2018, kicking off a landmark event as the world’s second largest equity market is opened to foreigners.
  • Global ETP flows show investors are increasingly taking a single country view on China instead of accessing it through broad EM index exposure.

Still room to run

Last year, Chinese equities were among the world’s best performing assets. The MSCI China Index was up 54% in 2017, outpacing broader emerging markets, which were up 37%, and more than double the 22% return of the S&P 500 Index.1 Despite the strong rally in 2017, we remain constructive on Chinese equities amid a stable growth environment, ambitious reform agenda, and solid earnings outlook.

To be sure, the recent tensions over trade do represent a risk. However, we view U.S. trade actions targeting China more as an opening gambit for negotiations than the start of a trade war. Moreover, China’s trade openness peaked over a decade ago as domestic growth drivers took on added importance, suggesting the economy may be relatively insulated from the effects of higher tariffs2.