The Shanghai and Shenzhen Exchanges: Performance by Size and MarketGrader Ratings

In this paper, MarketGrader Capital’s Francis Gupta explores the performance of Chinese equities, focusing on mainland China and A-shares, in an attempt to provide a transparent measure of the opportunity in the world’s largest economy and second largest capital market. The findings give rise to the following:

  1. Is China its own asset class? Chinese equities have increasingly been decoupling from other emerging markets. This pattern of decoupling has significant implications on how foreign investors, especially institutional investors, will benchmark and gain exposure to the vast opportunity in China.
  2. An Exchange Factor might be present: Differences in performance suggests that there might be an exchange factor at play between the Shanghai and Shenzhen exchanges. If this factor exists, and continues to persist, how will this impact benchmarks and performance as well as drive index and product evolution as investors seek exposures that are not just China specific, but exchange specific?
  3.  A Quality Spread exists and Fundamentals Matter: Our research uncovers a quality premium. This means that there is actually a very considerable role for stock selection based on company quality as defined by fundamentals, over time.

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