Many believe that the inclusion of A shares in MSCI has limited boost given their small weighting. However, sought-after companies such as liquor stocks have outperformed recently. That clearly shows market sentiment is improving.
Investors should focus on CSI 300 index products to ride on this round of A-share rally. Frankly speaking, the A50 index is more popular but it has excessive weighting in financial and resources stocks. These stocks are not quite preferred by international investors, who tend to like consumer plays.
As such, the CSI 300 index is a better proxy.
Some emerging markets suffered selling pressure in response to the inclusion news
But those with stronger fundamentals, like the Taiwan and South Korean markets , have already recouped their losses.
Investors still have one year to re-allocate their capital, therefore, they won’t quickly rush into A shares yet.
For myself, I have reduced my Hong Kong equities positions and added more A shares. This is why I did that.
Since certain H shares with favorable fundamentals have already accumulated sizable gains, investors might sell them to buy A shares. I am expecting A shares to outperform HK equities.
Meanwhile, the US stock market, largely underpinned by internet and biotech stocks, has shown signs of running out of steam.
Perhaps funds are leaving the US for emerging markets.
This article appeared in the Hong Kong Economic Journal on June 27
Translation by Julie Zhu
[Chinese version 中文版]
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