This paper presents a compilation of 30 companies trading on China’s Mainland exchanges that MarketGrader has selected from the historical constituents of our flagship MarketGrader China A-Share 200 Index since its inception in 2008. MarketGrader refers to these companies as the “MG China Elite 30” based on measures of their fundamental quality and their proven ability to be consistent generators of long-term value in terms of capital appreciation for their share- holders. Furthermore, MarketGrader believes that the MG China Elite 30 represent a new class of companies from China’s “new” economy as the country transitions from an economy based on exports, manufacturing and construction to one driven by the growth of the consumer and service sectors, embodied by a prosperous and growing middle class.
What differentiates the portfolio of MG China Elite 30 companies from other companies trad- ing on China’s Mainland exchanges? The answer is simple: exceptional company fundamentals. The MarketGrader China A-Share 200 index is composed of the 200 companies with the high- est MarketGrader ratings based on company fundamentals. Consequently, the portfolio that composes the MG China Elite 30, selected from the historical components of the MarketGrader China A-Share 200, represents the best of the best.
The fundamental characteristics of the MG China Elite 30 portfolio not only make it outstand- ing in terms of returns, but also make it a smart beta portfolio. This is because the lion’s share of the portfolio’s returns is company-specific, or idiosyncratic, and not driven by the broad market. In addition, for those questioning the ability of the Chinese equity markets to deliver long-term capital appreciation for its investors, the historical performance of the MG China Elite 30 port- folio answers with a resounding yes. In this respect, China’s equity market is no different from the more mature equity markets around the globe where company fundamentals are the key drivers of equity performance. More importantly, as we explore in the pages ahead, this new class of companies will help foster a new generation of shareholders that may partake in the ongoing development and growth of the world’s second largest economy.