White paper: Chinese equities
China is the world’s second biggest economy in GDP terms (and already the largest in purchasing power parity terms). China is expected to achieve absolute GDP parity with the US, depending on growth rates, within the next 10-20 years. This seems to be a forgone conclusion; it has the world’s largest population (at more than three times the size of the US population), a growing middle class and large rural population that provides a pool for future growth.
The scale of this is hard to comprehend in numbers alone; to put it into perspective, China is expected to have 550 million people in this socio-economic category by 2021, greater than the entirety of the population of the US, or the EU-27 (or the current EU-28).
Despite this, Chinese equities amount to only 4% of the overall market capitalisation of equity markets globally based on current index methodologies used by MSCI and FTSE.
And this 4% is only a subset of the available China exposure, focussing on offshore equities (mainly H shares listed in Hong Kong, rather than onshore A shares). An overview of the various Chinese markets is included in the appendix. This is in stark contrast to the role China plays at a global level in terms of GDP, geopolitics and ultimately as a key driver of markets well beyond its own borders. To put this in perspective, Microsoft and Apple together have a larger weighting in aggregate equity market indices than the entire onshore China equity market.