Chinese assets become a standard-bearer for global asset allocation

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

The world's second-largest financial index provider, FTSE Russell, added Chinese stocks traded on its A share market to its global benchmarks on Friday. This comes after the world's largest index provider, MSCI, increased the weight of China A shares in the MSCI Indexes last month. Taken together, this provides further evidence that international investors remain confident in the outlook for China's economy as they continue to invest in the country's capital market.

China's is the world's second-largest economy and its capital market is an indispensable part of global asset allocation. Despite the uncertainty caused by escalating trade tensions on global capital markets, the risks remain low and dividends remain stable in the Chinese market thanks to its steadily-growing economy. The valuation of the country's A share market is at an all-time low, with the price-to-earnings ratio of the Shanghai Composite Index standing at 13, which is lower than that of major global stock indexes, including the Dow Jones Industrial Average. It's so appealing that it's increasingly regarded as a haven for international capital, another important reason why the world's top two index companies have extended an olive branch to Chinese securities.

[File photo: IC]

Behind the two index providers are investors holding 25 trillion U.S. dollars of financial assets. By the end of 2017, global assets tracking the FTSE Russell benchmarks alone totaled 16.2 trillion U.S. dollars. The inclusion of Chinese stocks will enable international investors to allocate their assets on the A share market more efficiently. Only 2 to 3 percent of the securities in China's bond and stock markets are foreign owned, so there's a lot of room for growth. According to FTSE Russell CEO Mark Makepeace, overseas passive investing in China will reach 2.5 trillion U.S. dollars over the next five to 10 years as a result of index tracking. This will help improve the structure of China's capital markets and help domestic companies to be better positioned to compete globally.

International capital's foray into the A share market is a vote of confidence in China's further opening up and its integration into the global financial market. And it comes on top of the bolstering of confidence that followed the government's moves to ease the rules on foreign investment in securities firms, the opening of crude and iron ore futures trading to foreign investors, and the launch of mechanisms that facilitate securities trading between Shenzhen and Hong Kong, Shanghai and Hong Kong, and Shanghai and London.

Since the beginning of this year, China has strengthened its policy coordination to help ensure that the main indicators of the economy continue to operate within a reasonable range. The reliability of China's market as a place for investment is demonstrated by the strong growth in high-tech manufacturing investment: it's 7.5 percentage points above the investment in the manufacturing sector as a whole, which shows that a new and accelerating momentum is driving China's economy forward. As China continues to expand market access for international investors, the country's assets have become a standard-bearer for global asset allocation.