China: ever larger, ever changing

The Chinese stock market broke the $10 trillion barrier in October.


The total value of China’s stock markets in Shanghai and Shenzhen surpassed $10 trillion in October. For comparison, the UK market was worth about $4 trillion at the end of September 2020. However, this was not the first time that Chinese markets had reached the $10 trillion level. In mid-2015, the two markets peaked at $10.05 trillion before dropping precipitously to under $5 trillion in a matter of months as the authorities took action against traders – often individuals – investing with borrowed money.

Much has happened since that whiplash period. The Chinese markets have become less of a gambling for retail players and more like other global markets, with institutional investors taking a leading role. At the same time, a variety of initiatives by the Chinese Government and changes by international index providers, such as FTSE Russell and MSCI, have encouraged investment from outside the Middle Kingdom. Foreign (i.e. non-Chinese) investors now own about 5% of Chinese shares, up from virtually nothing in 2015. Consequently, the weight of foreign and institutional investors has reduced volatility.

As the graph above shows, that does not mean 2020 has been a smooth ride for the Chinese markets. With the Covid-19 pandemic originating in China, it was inevitable that Chinese share prices would suffer. However, their fall in the first three months of 2020 was less than most other large stock markets. That has meant that, perhaps surprisingly, for the year to date, the Chinese market has performed much the same as the US market.

The latest economic figures out of China show economic growth of 4.9% in the third quarter, after 3.2% in the previous three months, suggesting that China could be the only major economy to grow in 2020.

The $10 trillion value of China’s markets and the resilience of its economy mean the country cannot be ignored by investors. For now, it is still classed as an ‘emerging market’, although its size almost makes it the emerging market. To find more information on the choice of China-focused funds available for UK investors, get in touch with us.

The value of your investment and income from it. can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

27th November 2020