Chinese stocks have a flagship year, earning nearly $ 5 trillion

“The year has been very strong” for China, said Brendan Ahern, chief investment officer for KraneShares in New York. He said the country’s economic recovery, global investor desire for high-growth stocks, and a strong IPO market had all worked in China’s favor: “The end result is a remarkable growth in size. capital markets. ”

China accounts for nearly a third of the worldwide increases in stock market capitalization in 2020, S&P data show. Global stocks have gained 16% to $ 104 trillion.

The rise comes despite further disruption by USover technology, trade and finance – and efforts by the U.S. government to discourage American pension funds and other institutions from holding Chinese stocks.

Legislation signed this month by President Trump could force Chinese companies to suspend exchanges in New York if their review papers are not scrutinized by U.S. regulators for three year after year. The Trump administration has also moved to stop Americans from investing in companies he says will help the Chinese army, leading MSCI Inc.

and other index providers to exclude some stocks from their criteria.

The advances have confirmed China’s position as the emerging market. At the end of November, shares of Chinese companies accounted for more than 40% of two popular stock indices tracking developing countries, up from less than 30% five years ago.

“If you buy emerging markets around the world, you are buying Asia unfairly, and unfairly in China,” said Herald van der Linde, head of equality strategy for HSBC’s Asia-Pacific division.

E-commerce giant Alibaba Holding Group Limited.

they themselves accounted for nearly 7% of the 26-country MSCI Crisis Program – or more than the whole of Brazil added to the benchmark – at the end of November.

There are several drivers of improved performance in China. For one, the country has been resilient in 2020, becoming the first major economy to reverse post-coronavirus growth.

That has boosted confidence in Chinese equities and in companies serving Chinese families, such as Kweichow Moutai Co. distillery. Foreign ownership of shares in Yuan jumped more than 30% in the first nine months of 2020, to $ 404 billion, central bank data shows.

China’s currency has also gained more than 6% against the dollar in 2020, raising the dollar value of Yuan-denominated shares.

At the same time, shares in Internet organizations such as Tencent Holdings Limited.

, Pinduoduo Inc.

and Meituan has gone up, as Chinese consumers have shifted even more of their consumption and habits online. Globally, low interest rates and a cash-strapped financial system have also boosted investor commitment to high-growth businesses that have the potential to thrive even in a pandemic.

In addition China Inc. has registered value. has gone up with a new generation of market debutantes, in industries including telemedicine, electric cars and bottled water. Chinese companies that went public this year together accounted for nearly $ 1.3 trillion in market value, S&P data show.

The rally has boosted China’s position in indices, which portfolio managers use to mark performance, helping to manage trillions of dollars in investment.

The indices also determine how much money is traded by a trade like BlackRock‘s

iShares $ 28 billion MSCI Emerging Markets ETF and $ 95 billion Vanguard FTSE Emerging Markets ETF, held by many individual investors.

Chinese companies traded in New York, Hong Kong, Shanghai and elsewhere accounting for 41% of the MSCI stock benchmark that followed broadly in November and 45% of the same for FTSE Russell , a unit of London Stock Exchange Group PLC.

China’s importance to global investors, and its share of criteria, is likely to grow in 2021 and beyond. For now, the major land markets are still pounding under pressure relative to their dollar values. That’s because indices assign a lower importance to harder-to-reach markets and companies where large shares of stock are held by major long-term shareholders.

The recent listed stock value of yuan in Shanghai and Shenzhen was nearly $ 11 trillion, making mainland China’s stock market second only to the U.S. in size.

However, so – called A – sections have been added to major indices just in recent years, and their impact has diminished. MSCI, for example, treats a $ 10 billion company as worth $ 2 billion, by applying a 20% “inclusion factor” to limit the importance of A shares. In total, onshore stocks in China make up about 5% of the major emerging markets.

Alexander Treves, an investment expert for emerging markets and Asia-Pacific equities at JP Morgan Asset Management, said marginal investors were considering their holdings of trading shares. has inspired mainland China. “Compared to the size of their companies, it is still under-represented,” he said.

Inclusion factors for A shares could rise to 100% within a few years, as more Chinese companies go public, and others would have free floats increase, all Contributing to China’s influence, said Mark Makepeace, former head of the LSE indexing industry and a co-author of “FTSE: The inner story.”

“Everyone needs to think about China,” Mr Makepeace said. “Calling China and the USA, in five to seven years, will be the key to success. Get it wrong and then you perform well. “

Write to Quentin Webb at [email protected]