China A-shares will be 20% of global portfolios: FT
It’s no secret that Asia Unhedged is an unabashed bull on China as an investment. However, we’ve been seen as an outlier because the Western media pushes the narrative that China’s best days are over and it’s best to take your money out now.
Well, today, the Financial Times gave our argument a great boost.
In an interview with the paper, Mark Makepeace, chief executive of the FTSE Group, one of the giants in the indexing industry, said that China’s A-shares market is less than three years away from being included in the major emerging market indices.
“My guess is they are within two or three years of becoming eligible. I used to say five years,” he told the FT. “China has the potential to become 20% of global portfolios. It will dominate emerging markets. … All institutional investors are going to be holding A shares in the next three or four years, there is no doubt about that.”
In a world where index mutual funds and ETFs are becoming a larger percentage of the investing universe, and where portfolio managers need to meet and beat their benchmarks, owning the components of an index is a must have. Currently, most institutional investors have little exposure to the world’s largest emerging market. If the prediction about the indexes is right, this means a lot of money is going to flow into Chinese A-shares in the near future.
“It is without doubt the single most important financial event in the next decade,” Jan Dehn, head of research at Ashmore Investment Management, told the FT. “It probably should not be like this, but the truth is that the financial industry is incredibly beholden as to whether a country is in an index or not. It is a very powerful technical signal.”
Even Mark Mobius, executive chairman of Templeton Emerging Markets, told a Morningstar conference last week that he now had “no objections” to China’s inclusion in MSCI’s indices.
On June 9, MSCI is expected to announce whether A shares should be partially included in its emerging market indices. If it happens, investors would expect to be given 12-24 months to build up their exposure before the move becomes effective.