October 2019

Accessing China A-shares: A US$8trn market

On November 27, MSCI will raise the A-share inclusion factor from 15% to 20% and add mid-caps at a 20% inclusion factor. We estimate that the weight of China A-shares in the MSCI EM Index will be as high as 4% following the adjustment. To assist overseas investors in investing in China A-shares, we compiled this handbook outlining the basic information of 101 pure A-share companies in a corporate card format, entitled the CICC A-share corporate cards. We arrange the 101 stocks alphabetically and provide key information on the company background, ownership structure, current business model, future development, and our investment recommendation.

Figure 1: We estimate the weight of China A-shares in the EM Index at as high as 4% if the inclusion factor gradually rises to 20% and mid-cap A-shares become included
Source: MSCI, Bloomberg, CICC Research

We adopt the following criteria for selecting the 101 A-shares:

We focus on names included in the MSCI China basket. In accordance with the MSCI announcement, we expect the 268 names, of which 213 are pure A-shares, to be the primary focus of global investors. Essentially, such stocks meet MSCI’s requirements for market capitalization size and accessibility – e.g., MSCI-defined large caps (i.e., total market cap exceeding US$2bn); eligible for northbound Stock Connect trading; and currently not suspended from trading and having no prolonged suspensions – i.e., more than 50 days in the past 12 months.

We exclude A/H dual-listed companies, as it is easier for international investors to gain information and access to dual-listed firms, and most investors are likely familiar with such names.

The list only contains stocks that CICC rates as OUTPERFORM. The selected A-shares generally have solid fundamentals, sound corporate governance practices, and reasonable valuations. We believe that the list of 101 A shares can act as a cornerstone for international investors when participating in the domestic PRC equity markets.

Our CICC A-share 101 list generally represents high-quality China companies and sector leaders. Our list covers 22% of pure A-share names in the 268 MSCI A-share inclusion basket, making up 33% of overall market capitalization.

Figure 2: The CICC A-share 101 are skewed more toward new economy sectors
Source: Wind Info, CICC Research

With more than 20 years of research experience in the Chinese capital market, CICC has developed a sophisticated understanding of China’s economic environment, government policies, and industry regulations. We now cover 636 A-share companies as well as 356 Chinese equities listed overseas. Looking ahead, we believe that the increase of A-share inclusion factor will continue drawing domestic and foreign investors’ attention to China’s A-share market.

Given China’s status as the second largest global economy, we believe that the A-share market will continue playing an important role in international capital markets and that it will become an essential area for global investors to allocate their resources. We believe our 101 CICC A-share corporate cards will provide global investors with a valuable perspective for navigating and exploring this new and dynamic market.

For more details, please see our report CICC A-share Corporate Card: 101 A-share Companies published in October 2019.