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China and the future of equity allocations

categories: Research Paper, Americas, Asia Pacific, Australia, EMEAI, Zhen Wei, Asset Allocation and Asset Liability Management, Investing (Investment Management), Portfolio Construction and Optimization, Asset Managers (Quant or Fundamental), Asset Owners, Banks, Indexes, Equities

With the partial inclusion of China A shares in the MSCI ACWI and Emerging Market Indexes, institutional investors are reconsidering how Chinese equities fit into their global and emerging-market portfolios. In this paper, we analyze and contrast different ways of configuring policy benchmarks, considering two broad options: an “integrated option,” with China as an indispensable part of a wider equity opportunity set; and a “dedicated option,” where China is treated as a separate equity segment, similarly to U.S. equities. No matter which route investors choose, A-share inclusion may significantly impact their approach to asset allocation and portfolio implementation.

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