Wang Chao, International Business Department Of China Merchants Fund: Foreign Capital Is Changing The A Share Market.

Wang Chao

"This year, with the continuous upgrading of foreign investment, there are some very good changes in the A share market. If this trend continues, the A share market is expected to get out of the slow bull market just like the US Standard & Poor's 500." In December 5th, Wang Chao, the International Business Department of China Merchants Fund, was sponsored by the headquarters of the central broadcasting and TV station, Guangdong and Hongkong Macau, and the southern financial and all media group. In twenty-first Century, China's capital market, an innovative and open Chinese capital market, was held on twenty-first Century.

With the opening up of China's capital market and the economy far beyond expectations, the A share market has seen many positive changes. These changes are becoming an important starting point for the layout of China's asset management institutions.

Transformation of A share format

On the one hand, the A share market has changed significantly in the trend of increasing allocation of foreign capital this year. In the past, A shares fluctuated, but the volatility of A share market declined significantly this year.

On the other hand, there are obvious differences between Chinese and foreign stock markets. In the international mature market, there exists a "momentum effect" for a long time. In general terms, companies that perform well over the past 1-3 years will probably perform well in the future. In this regard, A shares and overseas counterparts, A share market is difficult to find a long-term "momentum effect" of the company, A share prices tend to have a short-term reversal, that is, in the past 3 months of good performance of the company, next month may be very poor performance. But in the past year, the A share market has changed very obviously, and there is a strong long-term "momentum effect".

"Maybe we are paying more and more attention to long-term investment and basic research. Domestic institutions are also recognizing the investment behavior of foreign capital, and constantly injecting capital into core assets under the promotion of long-term capital. Wang Chao thinks.

In addition, the A share market is becoming more and more popular in the market. The A share market has paid attention to growth in the past. This year, the company pays more attention to the profitability of the company and is concerned about whether the company really creates value. So this year, though the quarterly figures for many core assets are lower than expected, share prices are relatively mild.

Wang Chao believes that, generally speaking, this year's A share market has undergone some very good changes under the continuous increase of foreign investment participation. If this trend continues, the A share market can also go out of the bull market just like the US Standard & Poor's 500.

Wang Chao said that this year's large influx of foreign capital A shares, this trend will continue in the future. Take MSCI as an example, MSCI successfully completed the two A share expansion in May and August this year, and the third expansion in November. A share market share increased from 15% to 20%, and the central share market was also included for the first time in 20%.

According to Wang Chao, since 2019, the amount of foreign capital flowing into A shares has been increasing, but most of them come from the configuration of passive products that track the global index. The proportion of MSCI to A shares will increase from 20% to 100% in the future.

Trend of foreign capital flowing into A shares

It is noteworthy that MSCI will not be on the agenda for at least a long time next year. So, during this time, is there any way to continue the story that MSCI brings a lot of capital into A shares?

In this regard, Wang Chao said, "I would rather look forward to it, because foreign capital is not only a passive fund for A shares demand, follow-up active funds for A shares also needs. We preliminarily estimate that by 2020, the scale of the active fund allocation will be no less than that of the passive fund, and there will be a total volume of 3 billion billion yuan.

Then, what is the investment performance of foreign capital in A shares?

Wang Chao said that since November 17, 2014, Shanghai and Hong Kong started, so far 5 years. Overall, foreign investment in A shares has achieved good results. If foreign investment is regarded as a special group, since the opening of Shanghai and Hong Kong through 5 years, an index will be constructed based on the stock of foreign stocks flowing into the stock positions. According to the measured data, its performance exceeds the Shanghai Stock Exchange 50.

However, Wang Chao pointed out that in the face of foreign investment, there is a relatively short board in the domestic financial institutions at present. This is due to information asymmetry in foreign investment in domestic financial assets, listed companies and funds. For example, many pensions in Europe have very strong A share allocation requirements, but many of them are entrusted to independent consultants to make domestic asset allocation, and the investment styles of these advisers are also moderate.

Therefore, Wang Chao believes that in the process of strengthening international openness, China's capital market should be more active in policy. On the other hand, our financial institutions also need to take the initiative to go out and communicate with foreign investors more frequently, including business exchanges and interbank exchanges, so that A shares can be introduced to the logic of foreign capital in order to help foreign investment in China.