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A strategic route to capture China growth and diversify risk

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China’s stable growth continues to attract investors. The recently announced GDP growth rate (6.8 per cent) for China reveals that the economy remains strong and healthy, fuelled by numerous factors, especially the significant rate of consumption by Chinese consumers.

Robust consumption is one of the most important reasons attributing to China’s continuous economic expansion.  It has been reported that the booming consumption sector contributed 64.5 per cent of the 2017 Q3 GDP growth.

Looking forward, the Chinese government’s favourable financial policies on opening up the capital markets, together with efforts in pushing ahead the One Belt One Road initiative and RMB internationalisation, drive the future development in China.

Investors with an appetite to tap into the Chinese economic growth story are able to look at a wide spectrum of markets that operate across the country, particularly since the Chinese authorities have brought in a series of measures to encourage foreign investment and promote cross-market trading.

For example, mainland and Hong Kong investors currently can mutually trade stocks listed in Hong Kong, Shanghai and Shenzhen via the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect programmes. In addition, the Bond Connect scheme also enables overseas investors to access the China onshore bond markets.

These plans make it easy to see China’s determination to achieve market integration and globalisation. The ETF Connect initiative is in the discussion pipeline, further facilitating cross-market investment and increasing the diversity of product suites.

With the rising trend of cross-border strategies, exposure to both Mainland China and HK stock markets gives investors access to strong dynamic markets with different economic fundamentals. To capture the comprehensive China concept, investors should have exposure to both markets.

It is important that investors should be aware of the breadth and range of the markets available within China. The mainland China’s markets are still in the developing phase and dominated by local retail investors, while the Hong Kong market is a well-developed market with a lengthy history of international exposure and widely used by institutional investors.

Investors who are eager to diversify investment across the mainland China and Hong Kong could make reference to the Hang Seng China 50 Index.

The Hang Seng China 50 Index measures the overall performance of the 50 largest China companies (in terms of market capitalisation) listed on Hong Kong and the mainland China stock exchanges.

Spreading investment across the different markets available within the China investment universe might help to diversify risk because, if one market significantly underperforms, the adverse impact on the index may be somewhat mitigated by the performance of the constituent stocks in the other market.

The index encompasses Mainland-listed A, B shares, and Hong Kong – listed Mainland companies including H-shares, Red-chips and P-chips.

The Hang Seng China 50 Index mainly comprises financials, with that sector representing 56 per cent of the index. The next biggest sector is information technology, coming in at 11.96 per cent. These two sectors are at the forefront of the China growth story for both the mainland China and Hong Kong.

Year to date performance, as of 29 Sep 2017, for the Hang Seng China 50 Index is a gain of 24.62 per cent, while growth over five years stands at 48.89 per cent. 

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