China, at present, is going through a transformative phase. It is shedding its reputation as being a country of low technology and heavy manufacturing to a nation of high technology industries. Many Chinese companies are now actively courting the domestic consumer instead of trying the export market. These developments were largely ignored by foreign investors. The latter holds only a minute part of the Chinese market, calculated to be a meager two percent of the bond and stocks markets of the Asian country. This is soon about to change.
Government policies like “Made in China 2025” pushed the country to stunning growth in innovation and high technology industries. There has been a flowering of advanced marketing, electric vehicles, and e-commerce. It also holds the highest valued Artificial Intelligence (AI) start-up in the commercial world.
Investors, regardless of where they are from, be they Asian sovereign wealth funds, Australian pension funds, European hedge funds or simply ordinary savers scattered around the world, must examine what could be one opportunity in a whole generation. The equity market of China is the second biggest in the world, with Shenzhen, the technology-centric bourse, valued in the trillions in 2017. China's bond market is the world's third biggest.
Connecting the world
Beijing's calculative move of opening up the capital markets has accelerated during the recent years. The most prominent of such moves is the linking of the Shenzhen and Shanghai bourses with Hong Kong. The latter is a known and dependable international finance hub. In 2016, the China Interbank Bond Market Direct scheme was introduced. Hong Kong connected with Chinese bourses through “bond connect” in July 2017. A brand new stock may link the Chinese mainland with the London stock exchange in the latter part of 2018.
Yet another important milestone would arrive on June 1. This is the date when MSCI, the index provider, includes about A shares or 200 big cap stocks listed in the mainland into the Emerging Markets Index. Such an inclusion reveals the inclusion of China into the global markets. This may push about half a trillion United States dollars into the Chinese stocks during the subsequent five years to 10 years. This will be done as the institutional investors adjust the index-linked portfolios to the change in MSCI. The consumption front has seen a rise in incomes. Investment opportunities have been created in everything, ranging from food to travel services.