China: Deleveraging and the A-shares revolution
China’s economic model is rebalancing towards domestic demand. While not without its risks, at the moment this shift is proceeding pretty smoothly. Until now it’s been difficult to invest in this thesis through domestic China shares. But the long-anticipated inclusion of 230-odd mainland-listed A-shares in the MSCI Emerging Market index heralds the beginning of a unique opportunity. Over time, improved corporate governance and gradual liberalisation of the country’s capital account will attract large-scale fund flows into these securities, eventually making China the dominant component of the EM index. We’d be buyers for the long run.