China A-shares could outperform global markets over next 5 years

Updated 2018-01-25 15:26:00 Xinhua

A-shares, or shares of companies based in the Chinese mainland and traded in China, will perform better than other equity market over the next five years, an investment specialist said.

"Hundreds of billions of U.S. dollars are going to flow into Chinese stocks whether or not that's a good idea, as investors are forced to follow the MSCI model and invest money into China," Steve Sjuggerud, founder of the investment advisory newsletter "True Wealth Opportunities China," told Xinhua in a recent interview, citing global equity indexes provider MSCI's decision to include China A-shares into its indexes.

MSCI announced in June that it would add Chinese A-shares into the MSCI Emerging Markets Index, which was tracked by roughly 1.6 trillion dollars at that time, and the MSCI All Country World Index, beginning in June this year.

The firm estimated that about 17 billion to 18 billion dollars should initially flow into China's stock market once some of A-shares stocks are added.

Aside from MSCI's decision, Sjuggerud said he is also confident about Chinese A-shares' valuation.

"When you look at the forward P/E (Price/Earnings) ratio (of A-shares), when you look ahead, I don't think it is overvalued, I think there are still plenty of upside," he said.

Another important factor influencing the future performance of A-shares market is the high value of nearly all global stock markets, and many stocks have been significantly overbought, Sjuggerud noted.

"So if there was a downturn in U.S. stocks and European stocks, I believe that China A-shares would be a much better place to be," he explained.

So far, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index have risen 6.2 percent, 6.1 percent and 7.4 percent respectively compared with the start of this year, boosted by strong economic growth, positive corporate earnings and the U.S. tax cut plan.

Sjuggerud pointed out that typically, global stock markets are correlated with U.S. equities, but "China A-shares do different things" due to capital controls, which would provide a unique advantage for A-shares when the U.S. stocks fall.

In addition, Sjuggerud said he preferred blue-chip A-shares to smaller caps in Chinese stock market, adding that he believes the money will flow into blue-chip A-shares and expects a significant outperformance of blue-chips over smaller caps.

"I think even Chinese investors are underweight China (A-shares), they don't have enough Chinese A-share stocks," said Sjuggerud.

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