Spotlight series: 5 principles for a successful China investment strategy

#1 Foreign investors have multiple entry points into China's equity markets

#1 Foreign investors have multiple entry points to China's equity markets
More than one way to access the world’s 2nd-largest equity market

When foreign investors want to invest in China’s equity markets – the second largest in the world, just behind the US – the two biggest opportunities are “offshore” China equities, which are listed on the Hong Kong Stock Exchange, and “onshore” China A-shares, which are listed on exchanges in Shanghai and Shenzhen.1

  • The A-share markets are broader (approximately 3,900 stocks) and bigger (over USD 8.5 trillion).
  • China equities in the Hong Kong market are a smaller pool of stocks (approximately 1,200) with a market-cap size of around USD 3.4 trillion.
  • Each one is bigger in terms of market-cap size, and more diverse in terms of sector representation, than the US-listed ADR (American Depositary Receipts) market.
Investing in A-shares and Hong Kong-listed shares is not an either/or proposition

Energy and utility companies tend to be better represented in China equities listed in Hong Kong, and new stocks are regularly being listed on the Hong Kong exchange – which is growing more representative of the new “digital China”. Meanwhile, so-called “new economy” companies and small- to mid-cap stocks (in areas such as consumer, IT, industrials and healthcare) tend to be better represented in A-shares. But companies can be listed on both exchanges, and it’s possible to take a holistic approach and invest in both.

Onshore A-shares and Hong Kong-listed equities focus on different sectors of the Chinese equity market

Sector breakdown of MSCI China All Shares Index

Chart: Onshore A-shares and Hong Kong-listed equities focus on different sectors of the Chinese equity market

Source: Bloomberg, Allianz Global Investors. Data as at 30 June 2020.

Find a partner with experience navigating China’s markets

Look for an asset manager with experience investing in the many ways to access China’s equity markets – from onshore A-shares to offshore Hong Kong-listed shares to US-listed ADRs. China’s markets are large (the second largest in the world in terms of market-cap size), and they can be volatile and difficult to navigate. But they also offer significant upside potential.

1) Source for China equities data: Shenzhen Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock Exchange, Bloomberg, Allianz Global Investors. Data as at February 2020.

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