The back-and-forth between the United States and China has largely muffled the noise surrounding the inclusion of China’s A-shares into the emerging markets space.
“Unfortunately we think the announcement, and the positive sentiment that ought to have surrounded it, has been drowned out by the talk of trade wars and tariffs which seem to be dominating markets right now, particularly the Chinese market,” said Rob Bush, ETF Strategist at DWS.
Still Room to Grow
Despite the trade concerns, opportunities in Chinese markets can still be had. Per Reuters, the second largest economy in the world is “trying to walk a tightrope between supporting economic growth and tamping down financial risks, with policymakers freeing up more funds for lending by cutting required reserve levels for banks twice since April.”
That said, the impact of the A-shares inclusion is still too soon to determine.
“In the long term the direction of travel has been signaled in our view – the onshore Chinese market is becoming more accessible, more important, and will continue to play an increasing role in international benchmarks, indexes, and portfolios,” said Bush. “The Chinese stock market is the second biggest in the world after the US, and we believe it will continue to grow.”
The bigger question lies in whether the markets can shake off these looming trade concerns.
The introduction of A-Shares in June will continue its two-step process into the MSCI indexes with another set of inclusions set to occur in September. As such, capital inflows into these A-shares should go undeterred despite the fluctuations instigated by the trade concerns.
“To an extent it has to (positively impact flows) because, as greater clips of the Chinese market are included in key benchmarks, investors that track those indexes will need to buy China A-shares to get up to the appropriate weighting,” said Bush. “That said, we do think this will be quite a gradual process.”
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