The case for global investors to boost their allocations to China equities is increasingly compelling.
Looking beyond the current macro and market headwinds dampening global economic growth, the country’s transformation has a long way to go. By 2026, for example, China is expected to represent 25% of global real GDP growth, according to the IMF’s World Economic Outlook in April 2022, up from around 16% today. Notably, technology-led innovation across the IT, healthcare and telecoms sectors will play an integral role in fuelling this momentum.
This all creates a big opportunity for investors. Yet there is a striking gap to fill; China makes up only 4% of the cap-weighted index despite its significant contribution to global GDP.
Further, the general under-allocation by overseas inverstors to China is clear from global and emerging market (EM) funds being underweight in Chinese stocks, compared with the MSCI ACWI Index and the MSCI EM Index.
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