Investors should ‘absolutely’ own mainland China assets: Bank Julius Baer

Finance news

Jitters over U.S.-China trade tensions might have spooked markets earlier this year, but that doesn’t mean investors should shy away from mainland Chinese assets, Mark Matthews, head of Asia research at Bank Julius Baer, told CNBC on Wednesday.

“I think people should own China, absolutely,” Matthews told CNBC’s Sri Jegarajah.

For starters, the size of the Chinese market presented an attractive proposition.

“It’s too big to ignore. This year, Guangdong Province has become larger than the entire Russian economy and I could reel off about a dozen other statistics like that. It’s just so big now and yet people have always treated it as a tactical bet, so they’ve never really owned much of it,” Matthews said.

Foreign ownership of A shares, or Chinese stocks traded on the mainland, is relatively low, with most estimates currently putting the figure at around 2 percent.

Better management in the country on a macro level was another positive factor, said Matthews. He cited the “Made in China 2025” strategy to boost local industry, the far-reaching Belt and Road Initiative and deleveraging as examples of those improvements.

“And the companies are much better than they were 10 years ago,” he added.

Chinese assets also did not look expensive, according to Matthews. “There’s no other market in Asia that has this kind of value,” he said.

Ahead, MSCI’s addition of A shares to its equity indexes is set to take place on June 1. “We know that’s just a first step so there’ll be a lot more allocation to come,” Matthews said.

Estimates for the levels of initial flows into the mainland stock market vary, with some analysts expecting more than $400 billion in inflows when A shares are fully included. In the near term, J.P. Morgan has forecast some $6.6 billion in passive inflows migrating to MSCI China companies, as well as up to $40 billion in active flows.

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