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The Great Awakening

February 1, 2018 | Global/Emerging Markets


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The recent opening of the Chinese equity markets to foreign investors presents a notable investment opportunity.

At the end of 2016, China allowed, for the first time in a meaningful way, the flow of investment dollars into domestically listed Shenzhen stocks through the Shenzhen-Hong Kong Stock Connect.

The Shenzhen-Hong Kong Stock Connect is an investment channel that connects the Shenzhen Stock Exchange and the Hong Kong Stock Exchange. Under this program, investors in each market are able to trade shares on the other market using their local brokers and clearing houses.

The flow of investment dollars into domestically listed Shenzhen stocks through the Shenzhen-Hong Kong Stock Connect opens the possibility of investing in a nearly $10 trillion market.

In practice, the flow of investment dollars into domestically listed Shenzhen stocks through the Shenzhen-Hong Kong Stock Connect opens the possibility of investing in a nearly $10 trillion market. Foreign investors can now access rapidly growing parts of the Chinese economy that were not previously accessible.

These opportunities span sectors—IT, capital goods, materials, consumers, real estate, and healthcare, among others, as the chart below illustrates.

The opportunity here is vast, not just in size but in opportunity for active managers, because most of these companies are not well covered. Active managers with experience in China A shares will have a rare opportunity to seek potential winners in the most exciting growth jurisdiction available today.