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Riding the wave of Chinese stock market with ETFs, +30% since January

March 29, 2019


Abstract : The offer of low-cost derivative instruments liabilities available to the Italian investor has gradually grown over the years, meeting the demand for underlying assets with very high potential even if without any leverage.

MILAN, Mar 25 (Class Editori) - The offer of low-cost derivative instruments liabilities available to the Italian investor has gradually grown over the years, meeting the demand for underlying assets with very high potential even if without any leverage. It is possible to choose among the products that allow to focus on Chinese equities in a broader sense (including Hong Kong and the internal markets) and the ETFs, which aim exclusively at the continental markets and make it possible to replicate the performance of Chinese class A stocks.

In the first scenario the dynamics of returns are closer to those of the emerging markets, with a focus on Asia, while in the second scenario the bet is on the inclusion of class A shares in international benchmarks. It should be noted that there is a very high correlation of the index of Hong Kong compared to MSCI World, (0,65) with a beta of 0,90, while the CSI30, which represents only Chinese class A stocks, is limited to 0,34 and 0,65 respectively. As for non-correlated assets, a clear advantage is given by inserting  CSI300 quotas alongside products linked to the global stock market. As a result, the correlation between Hong Kong equities and the CSI300 is limited to 0.55, a very low rate for Chinese stocks belonging to different markets.

In this regard, it should be pointed out that the recent turnaround by the index provider MSCI, which has recently announced that in 2019, at pre-established stages, the share inclusion of Chinese class A stocks in its benchmarks will be increased. MSCI announced its intention to gradually increase the share of inclusion of class A stocks in its benchmarks in the course of 2019. This measure will have a significant impact on the weight of Chinese stocks and potentially on dividend rates, highly dependent on flows for emerging markets, especially if the underlying stock has less liquidity.

The weight of Chinese equities, according to the MSCI Emerging Markets index, is thus destined to shift from the current 0.7% to around 3.3% in 2019 alone. Anyway, it is estimated that further increases will occur over the next few years, for the benefit of those positioning themselves in time. In terms of performance, since the beginning of the year it has significantly extended the class A stocks, with a gain of more than 30% compared to +16% achieved by the more diversified MSCI China.

(Source:Class Editori)

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