Recently, kinger Lau, chief China equity strategist of Goldman Sachs, Timothy MOE, chief strategist of Asia Pacific region, and his team recently published a research report, believing that for global investors, the investability of A-Shares is enhanced.
The strategy analysis team of Goldman Sachs holds a positive view on A-Shares and believes that the A-share market is still in the early stage of development. Moreover, from the perspective of return volatility and differentiation, China’s A-share market provides many special investment opportunities. From the micro perspective, the risk returns of many stocks are attractive, and the investment themes and stylized investments are also diverse.
enhanced investability of A-Shares
The report points out that thanks to the continuous opening-up and reform of the capital market (QFII reform), the broadening of investment channels (expansion of interconnection mechanism), the continuous enrichment of products (such as MSCI China A50 interconnection futures) and the evolution of market structure, the investability of A-Shares has been enhanced for overseas investors.
In addition, not only the above capital market reform measures, the market value of the A-share market is US $14 trillion, the average daily trading volume is US $188 billion, and the scale and trading activity rank second in the world.
This market is not only large in scale and liquidity, but also has strategic allocation significance for international investors because of its significant future growth and potential, space for excess returns, index entry and active allocation to promote the overall allocation of a shares.
For a shares, a number of regulatory adjustments to the capital market in the past few years are aimed at improving market efficiency, governance framework, information asymmetry and investor protection, and better benchmarking with international standards.
The index inclusion process has come to an end since November 2019. However, as the conditions for increasing the index inclusion weight have been met, it may regain momentum this year and next, which is worthy of investors’ renewed attention to the impact and strategy of index oriented investment.
In fact, the focus of the market has changed from “entry” to “creation”. In the past two and a half years, the science and innovation board and the Beijing Jiaotong exchange have successively appeared, and the significant macro policy tendencies of supporting small and medium-sized enterprises and direct financing, reducing leverage, cultivating innovation and promoting fair competition have been implemented. This is particularly evident in the “emerging China” sector.
the A-share market does not overestimate the growth prospect
The report also pointed out that the new listing mechanism and exchange should help high growth enterprises more easily set foot in the capital market and further optimize the fundamentals of a shares; The A-share market is still a fertile ground for investors looking for structural / endogenous growth opportunities.
According to the classification of Goldman Sachs strategy analysis team, Chinese enterprises account for about 40% of the global enterprises with high growth prospects. Importantly, referring to the historical level, other asset classes in China and other overseas stock markets, the A-share market does not overestimate the growth prospects, whether in terms of absolute valuation or implied valuation.
The actual capital flow of the portfolio reflects how investors choose between considerable growth and valuation considerations. In 2021, the net purchase of land shares to the North reached a record US $67 billion, and the global public funds maintained over allocation of a shares, forming a sharp contrast with investors’ significantly lower allocation of Hong Kong shares and China concept shares listed in the United States.
From the perspective of China, the asset institutionalization trend that has been discussed for a long time and has been waiting for a long time seems to be advancing well. This is proved by the tripling of the scale of stock asset management of Chinese institutional investors since 2018. In addition, over time, trillions of dollars of real estate market assets may be reallocated.
Globally, environment, society and Governance (ESG) is the most meaningful action initiative and investment theme. As a policy executor, standard setter, capital provider, investor and the location of ESG investment opportunity market, China can play an important role.
The most important point is that as China promises to achieve carbon neutrality by 2060, according to the prediction of Goldman Sachs Global sustain team, China’s green capital expenditure is expected to reach $16 trillion in the next 40 years.
Goldman Sachs strategy analysis team believes that common prosperity related to the social (s) part of ESG will become the guiding principle of China’s future development. According to the calculation, 68% of the market value of A-Shares are positively related to this comprehensive development concept.
