MSCI to add China A-Shares to emerging markets index: What does it mean for investors?

The decision brings better representation of the entire Chinese economy

After four years of discussions, on June 20, 2017, MSCI announced a ”yes” decision on including China A-shares in the MSCI Emerging Markets Index, which tracks $1.6 trillion1 worth of assets around the world, and related indexes.2 The decision is seminal because it provides previously unavailable A-share exposure in emerging markets (EMs) and global indexes. The initial weight of China A-shares in the MSCI Emerging Markets Index upon the August 2018 inclusion will be 0.73% (2.49 % in the MSCI China Index), comprising 222 onshore-listed stocks. The number of stocks is higher than the originally proposed 169 stocks in March’s consultation paper.

This change is

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China: Making solid progress on its Five-Year Plan

As the National People’s Congress convenes, we highlight three government priorities to watch

Mike_ShiaoThe annual National People’s Congress (NPC) started on March 5, 2017, with Premier Li Keqiang announcing key economic growth targets and major reform initiatives designed to help China achieve stable growth and become a “moderately prosperous” society by 2020. These announcements are in line with the vision that was laid down two years ago in China’s 13th Five-Year Plan.

China was largely on track with its policy targets in 2016. The economy grew 6.7% (as seen in the table below) while making progress in reducing industrial overcapacity and financial risks. 2017’s key economic targets are designed to build on that progress, with further fine-tuning in growth rates widely expected, to allow room for the Chinese government to proceed with reform issues such as overcapacity and leverage.

The table below compares the key targets announced this year and last year:

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History rhymes: Comparing China today with 1920s Japan

China faces two main options in dealing with its economic distortions

John GreenwoodThe Chinese currency has been depreciating since January 2014, and the balance of payments has weakened. There has been a substantial decline in the current account surplus relative to gross domestic product (GDP) since 2010 and, more recently, persistent private sector capital outflows.

The question is: How long will the Chinese yuan continue to depreciate and how much will China’s exchange reserves decline?

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Asian contrast: Japan falters as China transitions economy

Trump administration policies could potentially rattle economies of both countries

Jason_Mark_sm_150dpi_RGBAbsent the major reform investors have been hoping for, Japan’s economy remains largely stagnant, with the yen weakening over the last quarter of 2016. By contrast, China, along with the rest of Asia, seems poised for another year of relatively stable growth. The policies of US President Donald Trump, however, could potentially spur volatility in both economies. Let’s take a closer look.

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China: Growth, debt and liquidity promise to capture the spotlight

2017 Investment Outlook series

Mike_ShiaoLooking ahead in 2017, the Invesco Equity Investment team in Asia believes the focus of attention for the Chinese economy and equity markets will be on growth, debt and liquidity. We expect China’s policymakers to focus their efforts on near-term growth stability, with reforms taking a secondary role for now. Consumption will continue to be the growth driver. China’s debt problem will linger on, but we see no imminent risk of an economic blowout. We are seeing a shift in loan activity from corporations to consumers, which we see as a positive development for the economy. As for liquidity, the existing Shanghai-Hong Kong Stock Connect and the recently launched Shenzhen-Hong Kong Stock Connect will continue to enhance market accessibility from both north- and southbound channels. In particular, we believe that global investors in offshore Chinese equities will benefit from the strong liquidity in the southbound channel. In this piece, we will explore these three topics in greater depth.

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