As China continues down the path of capital market liberalization, many investors are confronted with a dizzying array of options: H-shares, B-shares, A-shares, P chips. Shares listed in Hong Kong, Shanghai, Shenzhen, Singapore and New York. While the economic rationale for investing in China may be straightforward, the means by which investors should be gaining access is not. In our view, given the diversity of opportunities in the market, any investor seeking “beta” exposure to Chinese equities should seek exposure via all means available. 

China by the Numbers

The Chinese economy accounts for more than 15% of global gross domestic product (GDP) and 11% of global trade.1 When measured purely by market cap, China has the second largest equity market in the world.2 However, as a result of restrictions imposed by the Chinese government, these massive markets have generally been off limits for most investors. Over the last decade, Chinese policy makers led by President Xi Jinping have sought to gradually open Chinese markets to outside capital. As a result, China appears to offer an attractive mix of high growth rates, a burgeoning middle class and an economy poised to climb the value chain from export-oriented growth. In our view, China’s importance in global markets will only grow as the government transitions to increase integration among global investors.

Historically, exposure to Chinese equities for non-Chinese nationals was limited to companies that listed on international exchanges. After a variety of pilot programs and special institutional frameworks, China has made dramatic steps forward over the last several years to make mainland-listed companies more accessible to global investors. As a result, we believe investors should not necessarily limit themselves to certain listing venues when constructing exposure to China. As we show below, the S&P China 500 Index is one of the only broad-based indexes offering exposure to all flavors of Chinese stocks.

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