While China is the second largest economy in the world, many emerging market fund managers have not pulled the trigger on adding more Chinese onshore equities into their portfolios. Consequently, many retail investors remain largely underweight China and less exposed to the recent bout of volatility. Nevertheless, some investors have held some China exposure through Hong Kong-listed Chinese companies, but the H-shares stocks have not shown the same level of volatility as A-shares.
“Investors with a 60/40 stock/bond portfolio of broadly diversified index funds will have about a 5% allocation to emerging-markets stocks,” Oey added. “This means that Chinese stocks, on average, will account for about 1% of the entire portfolio. So while there have been plenty of headlines about the dramatic moves in the onshore Chinese equity markets, these events have had a minimal impact on the average investor’s portfolio.”
However, overseas China shares account for about 2.5% of global equities market-cap-weighted indices. Major indices, like MSCI, are thinking about adding more A-shares allocations, but the index providers remain wary of liquidity bottlenecks as foreign investors are restricted in their access to mainland Chinese stocks.
For more information on China, visit our China category.
Max Chen contributed to this article.