Synopsis
– The domestic A-share market in China has become the second largest equity market in the world, yet it remains mostly outside the investment universes of international investors and asset owners.
– Foreign ownership and capital restrictions coupled with opaque listing rules has restricted overall foreign ownership to only 3% for the A-share market.
– If MSCI builds on its decision to introduce A-share companies in 2018 towards full inclusion, then Chinese companies may eventually represent over 40% of the MSCI Emerging Markets Index (Figure 1), reinforcing the country’s continuing importance and growth in the global economy.
– The introduction of A-shares comes with a number of potential investment risks, however the broader opportunity set will also create opportunities for disciplined, long-term focused value investors.