Graphic: China gains attention
Mercer is touting emerging markets, and China specifically, as an attractive place to invest, making this an opportune time to examine the country closer. This comes even as the MSCI China index's total return has significantly underperformed the Russell 3000, MSCI ACWI and MSCI Emerging Markets indexes over the past year and three years.
How to buy in: Investors can purchase shares in Chinese and Hong Kong public companies in several ways. A, B and H shares are for companies incorporated in China, depending on where the company's shares are listed and in what currency it trades.
Share classes
| Class | Country of incorporation | Country listing | Currency |
|---|---|---|---|
| A shares | China | China | Yuan |
| B shares | China | China | U.S. dollar |
| H shares | China | Hong Kong | Hong Kong dollar |
| Red chip | Outside China | Hong Kong | Hong Kong dollar |
| P chip | Outside China | Hong Kong | Hong Kong dollar |
| S chip | Outside China | Singapore | Singapore dollar |
| N Shares | Outside China | U.S. | U.S. dollar |
Major weighting: Chinese companies make up 35% of the iShares MSCI Emerging Markets index fund, rising to about 40% when A shares are included, according to Mercer. Four years ago, China had a 28% weighting. The current listings include major companies like Tencent Holdings and Alibaba Group.
Constituent domicile of the iShares MSCI Emerging Markets ETF
Returns mixed: Over one- and three-year periods ended June 4, the MSCI China index returned 31.1% and 6.8%, respectively, well behind the Russell 3000, MSCI ACWI and MSCI Emerging Markets indexes. But over the past five years, the MSCI China index provided a competitive 16.9% return, trailing only the Russell 3000.
Index returns
Lower risk: The MSCI China index's five-year beta was lower than the Russell 3000 and MSCI ACWI indexes. Over a long period, Chinese equities could provide competitive returns while offering diversification benefits.
Five-year beta
| Index | Russell 3000 | MSCI ACWI | MSCI Emerging Markets | MSCI China |
|---|---|---|---|---|
| Russell 3000 | 1.00 | 1.07 | 0.75 | 0.52 |
| MSCI ACWI | 0.88 | 1.00 | 0.79 | 0.54 |
| MSCI Emerging Markets | 0.69 | 0.88 | 1.00 | 0.75 |
| MSCI China | 0.65 | 0.83 | 1.04 | 1.00 |
Sources: Mercer, Bloomberg LP
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