Quick Take: Chasing Growth in China A-Shares?
Offshore ownership of China-A shares: Overwhelmingly growth-oriented
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Over the past two years, growth stocks have come to dominate holdings through the northbound Hong Kong Stock Connect program. The blue markers (below) are stocks where 10% or more of the available float is held by users of the Hong Kong Stock Connect.
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Moreover, all but 4 of these 91 most popular stocks have undesirable value characteristics. In other words, while onshore investors are tilting their portfolios towards growth, they are also — whether intentionally or not — ignoring valuation.
China A-Shares: Risks in ignoring their full breadth
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China A-Shares are often perceived as growth-centric. Over the past 2 years, this perception has been self-reinforcing (below).
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The demand for growth exposure combined with the historically strong outperformance of these stocks has resulted in a substantial and widespread tilt towards growth.
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This positioning, while recently profitable, ignores the long-term returns offered by value signals in the China A market and risks reversion of growth’s outperformance. Investors would be wise to seek diverse drivers of excess returns in their China-A allocations.
Hong Kong Stock Connect Investors: Owning Growth, Ignoring Valuation
Style Performance: Excess Return of Value & Growth in China-A Shares
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