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Chinese A-shares escape the trade war trap

Data: Factset; Chart: Axios Visuals

While China's most well-known equity indexes have underperformed this year, its onshore stocks — so-called A-shares — have driven returns well above the U.S. and index maker MSCI's all-world stock index.

What it means: The A-shares are primarily domestic companies and therefore less exposed to the U.S.-China trade war.

  • Asha Mehta, an emerging and frontier market portfolio manager at Acadian Asset Management, told me last year that was a big reason she was leading her firm’s new China A-shares fund, the second asset manager to get licensed for A-share market access. She said that she was expecting the fund to draw $2 billion in assets.
  • Unfortunately for most investors, they are still little owned by those outside of China. But that's changing quickly.

What's happening: Researchers at the IMF reported Wednesday that aggregate portfolio inflows to China had more than tripled to $159 billion in 2018 from $50 billion in 2016, with overseas purchases of A-shares "especially strong."

  • "Add the widely expected inclusion of Chinese bonds and equities into FTSE and JP Morgan indexes, and China can expect to see benchmark-driven portfolio inflows of as much as $450 billion, or 3 percent to 4 percent of GDP, in the next two to three years," analysts wrote.
  • "These preliminary estimates may be conservative."

Go deeper: The trade war isn't breaking China's economy