China's economy and equity market have grown substantially in size and prominence over the past decade. Mainland-listed China A-shares have likewise become more accessible to global investors during this expansion, broadening the opportunity set beyond offshore shares. As of Dec. 30, 2022, over 75% of China's total equity value—equivalent to USD 11 trillion in total market cap—was represented by onshore listings, making the A-share market the second largest globally after the U.S.
Since 2004, the S&P China A 300 Index has offered efficient, representative exposure to these onshore companies. In this overview, we will cover the following key points.
- Reasons one may want to consider China A-shares, including their underrepresentation in broad benchmarks, differentiated investment characteristics, and high return dispersions compared to offshore shares.
- The S&P China A 300 Index has an extensive track record and offers potential methodology advantages compared with the widely used CSI 300, including:
- The exclusion of sanctioned securities;
- A sector balance consideration to improve industry diversification; and,
- A profitability requirement to eliminate companies without a track recored of generating posititive earnings.
CONSIDERATIONS FOR A-SHARE EXPOSURE
While Chinese equities have grown in importance for international market participants, A-shares are limited to partial inclusion factors within broad benchmarks, leaving them significantly underrepresented in conventional Chinese and emerging market indices. While offshore-focused benchmarks tend to capture growth in technology-focused Consumer Discretionary and Communication Services sectors, onshore indices continue to provide broad exposure to traditional sectors and a growing share of Information Technology and Consumer Staples companies. Without representative inclusion of A-shares, China-specific exposure within indices could be considered incomplete.