As A-shares may be included MSCI Indexes in June for the first time, how can investors develop a winning strategy?
In the past few years, markets have speculated about the inclusion of A-shares in MSCI Indexes. This year, the probability is much higher, as financial market regulators in China have worked hard to create the necessary conditions for entry.
Whether A-shares will be included in MSCI Indexes or not, the best strategy for investors is still to focus on fundamentals. The MSCI factor is unlikely to be a major catalyst for A-share investors, whether upside or downside.
If A-shares will start to be included in MSCI Indexes, as markets expected, their weighting will be small initially. Chinese financial markets are still subject to foreign capital controls by the authorities, and trading volumes will therefore be limited.
On the other hand, if A-shares are once again excluded, then the negative impact is unlikely to be meaningful. The government remains committed to internationalizing China’s capital markets, and will continue to be supportive of tools like Shanghai-Hong Kong Stock Link, Mutual Recognition of Fund, QFII and RQFII. The Shanghai-London Stock Link is shortly to begin, and it is surely only a matter of time before A-shares are eventually included in MSCI Indexes.
A-shares have stabilized after the recent sharp correction, and there is support for the 2,800 points level. As Chinese economic growth slows, there may be further drops in A-shares before their recover.
Investors should focus on companies with strong underlying operations and growth prospects, such as new energy vehicle, smart driving, medical and food and beverages still offer good longer-term growth prospects.