An Emerging Equity Opportunity: China A-Shares (UK)

Executive Summary

  • China has opened its local (A-shares) stock market to foreign investors. Given the size of China’s market and economy, this is a significant issue for institutional investors. Investors will get increased exposure to China over the coming years as indices and investment managers increase their exposure to Chinese A-share equities.
  • The case for investing in a China A-shares specialist manager can be made on three levels — gaining full universe exposure, risk/return impact, and the potential to add value through stock selection. Within these categories, we find stock selection benefits most persuasive.
  • Investors with a healthy risk appetite and a long-term investment horizon should consider a stand alone allocation to China A-shares. We suggest that an active approach via carefully selected specialist managers is best able to plug the gap left by indices and some global and emerging markets equity managers.
  • For many institutional investors, a separate allocation to a China A-shares equity fund may not make sense from a governance and risk perspective if their overall equity allocation is small or reducing. They should, however, at least understand how their portfolio will gain exposure to A-shares through their existing managers.
  • Aon’s manager research team, working with colleagues in Shanghai, have been researching China A-share managers and other Chinese equity strategies for over eight years. We have identified a select group of specialist managers that have A-share expertise and are open to investment now.
  • China may not be the most obvious of investments now given USChina trade wars and various other macroeconomic and market risks. However, we think that this is a reasonable time to buy into China’s transformation agenda. Investing in China requires a long-term view.
  • This note offers a strategic perspective and, although the Coronavirus is causing short-term disruption, we do not expect the outbreak will detract from China’s longer-term investment rationale.

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