Is it time to declare that China, the world's second largest economy and equity market, is an asset class? We developed the MAP framework based on comprehensive research covering Market Size, Availability and Portfolio Impact. We made the following observations:
• China's equity market has a $9.2 trillion market cap and is 7% of the global investable opportunity
• Foreign ownership of China's mainland equity market is just 2%, but will grow rapidly with the development of the Hong Kong Connect Program and MSCI's decision to include A-shares in the definition of Emerging Markets
• Treating China's equity market as a separate asset class can produce more efficient portfolios. Over the last 17 years, a 40% China, 60% Emerging Markets ex-China portfolio produced a more efficient return/risk trade-off than a stand-alone emerging markets strategy.
We believe that China is a separate asset class and that portfolio managers should make explicit decisions when it comes to their China exposure.
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