Janus Henderson: China shares go mainstream - implications for investors

In the short term, we expect minimal impact from MSCI’s inclusion of China A-shares on Asian markets. Blue chip China A-shares have performed well year-to-date, partly in anticipation of this event and we may even see some profit taking as a result.

It is important to note, however, that this is a crucial first step for MSCI and it acknowledges the progress that China has made in addressing their concerns at the previous three annual index reviews. Given that the inclusion will only be implemented in two stages in 2018 and on a 5% partial inclusion basis, this will likely have a limited impact on benchmarks initially, but should continue to raise China’s weighting in both Asia and emerging market benchmarks over the next decade as the inclusion factor is increased.
One risk we would flag for investors is that China will likely continue to increase its weight in regional benchmarks as a result of this decision, and will result in more concentration risk at a country level, particularly for investors gaining exposure to the region via exchange-traded funds (ETFs) and passive allocation. In our active portfolios we aim to provide diversification by country and sector rather than be led by index weights.

Some of our best investments over the last three years have been China-related shares and we expect to continue to find more attractive opportunities in the region. As such, we do not foresee an immediate impact on the Asian Growth Strategy as we already research and invest in A-shares. Over time we expect to increase the allocation to A-shares given the depth and choice of companies available in the market.