A Forward-Looking View of China A shares Amid Economic Transition

A Forward-Looking View of China A shares Amid Economic Transition

Kevin Chen (Head of Investments, Invesco Great Wall), Weilun Soon (Thought Leadership Manager, Invesco), Chris Liu (Senior Portfolio Manager, Invesco) and Yingying Su (Client Portfolio Manager, Invesco Great Wall) are also co-authors of the article.

China has been embarking on reforms to sharpen the competitiveness of its private sector, causing China’s corporate landscape to change rapidly. Yet the COVID-19 outbreak and latest geopolitical disruptions are hastening these shifts. Understanding implications brought about by these shifts is crucial for Chinese equity investors.

Historically, the China A-share market has offered a rich source of alpha based on average active manager performance. However, equity investors have been frequently disappointed by the market’s beta performance. This is largely due to the huge market volatility linked to the large presence of retail investors, market micro mechanism such as limited ability to hedge and short as well as the closed nature of the capital market.

As China’s economic transformation accelerates and its capital market continues to open up, the nature of the beta that China brings may again evolve. How should equity investors think about their China strategy amid the changing landscape? Which macro secular trends are the ones likely to sustain China’s economic transformation, and how could investors position their portfolios to tap into these shifts?

Investment risks

Invesco Great Wall is a 49% Invesco-owned joint venture.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

When investing in less developed countries, you should be prepared to accept significantly large fluctuations in value.

Investment in certain securities listed in China can involve significant regulatory constraints that may affect liquidity and/or investment performance.

Important information

This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.