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Financial Investigator: Promising China A-shares need to be on every institutional investors agenda

China’s economic (and financial) growth has been extraordinary not only over the last decade, but over the last 40+ years. Dr. Cord Hinrichs, Head of Asset Allocation at Corestone Investment Managers AG, on investing in the ‘Middle Empire’.

Looking at the current index composition, of MSCI or FTSE, it becomes clear that current index weightings of China (H- and A-Shares) do not reflect either the size of China’s economy nor the size and opportunity set of the stock market. This is changing with MSCI moving forward in including more A-Shares into their indices (going from currently 5% to 20% inclusion factor by November) and FTSE also introducing A-Shares into their indices.

There has been significant growth in the adoption of A-share investments by international investors as the number of northbound Stock Connect accounts has grown from 1,700 before the June 2017 inclusion announcement to over 7,300 in February 2019. Assets have grown 160% despite negative returns for the index over that time frame.

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