One-Year Reflections: Investing in Onshore China

Just over a year ago, Acadian launched a dedicated China A strategy, offering investors access to the onshore Chinese equity markets. Acadian has been granted access through the RMB Qualified Foreign Institutional Investor (RQFII) program, providing the broadest possible access to this evolving and dynamic market. 

In this post, our team reflects on the impetus behind Acadian entering this market, some key onshore observations that impacted China A-shares over the past 12 months, and how these developments may affect strategic asset allocations moving forward.

Joseph Ritter

Q: MSCI announced in February 2019 that it will increase the inclusion factor of A-shares in its indices from 5 to 20 percent throughout the year. Additionally, FTSE Russell will include A-shares in its emerging markets benchmark for the first time, joining MSCI. What do these index inclusions signify about the market as it relates to longer-term strategic asset allocation?

"The second-largest economy in the world has thus far remained largely inaccessible to global investors. As investors become increasingly aware of this potential opportunity and as benchmarks begin to reflect the full breadth and depth of the Chinese economy, we believe allocators need to reassess how China may help them achieve their investment goals. In the near-term, active investors may benefit from the abnormal levels of market inefficiency. Over the longer term, investors will need to assess how China fits within their overall investment program. Stand-alone China public equity allocations may become the standard.”

Joe Ritter, VP & Product Strategist, Equities

Kurt Livermore

Q: How should institutional investors approach this market given that it has traditionally been driven almost entirely by retail investors?

“Retail investors represent approximately 80% of trading volume and are a key element behind the elevated levels of market inefficiency.  Investors with an active, systematic process may find ample opportunities to generate alpha. I believe that investors with a long investment horizon should embrace heightened volatility with a systematic investment process in an effort to capture the unique source alpha that is largely uncorrelated to other global equity markets—including the offshore Chinese equity market.”

Kurt Livermore, SVP & Portfolio Manager

Bin Shi

Q: What role does data play in this market?

“As the onshore Chinese equity market has developed over the past two decades, so too has data availability and quality. Acadian has been following China A share-related data for over a decade. We have a dedicated data team monitoring and ensuring the integrity of our datasets, and we continue to be encouraged by the richness of the data. Acadian’s fundamentally based stock forecast model estimates returns for the entire investable A-shares universe and is the lifeblood of our process. Without an extensive amount of quality data available, we would not have been able to develop our dedicated China A-shares strategy.”

Bin Shi, SVP & Portfolio Manager

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