Beneath Trade Clouds, China's Transition Opens Opportunities

Rising trade tensions with the United States should not obscure the importance of China's progress in transforming its economy and opening its markets, according to Goldman Sachs Research's Tim Moe. On the latest episode of our podcast, Exchanges at Goldman Sachs, he says the size of the Chinese economy and its diminished reliance on trade to fuel growth makes it resilient to the direct impact of trade tariffs. At the same time, the inclusion of China A shares in global benchmark stock indexes means the Chinese market is poised to become an even bigger player on the global equity stage. "We have a very strong view that the opening up of the A-share market is something that investors globally really need to take very seriously and prepare for," he says. With a market capitalization of $9.3 trillion-second in size to only the US stock market--"people are just going to have to care about this," Moe says. The approved A shares will be phased into the MSCI indexes slowly, but as their inclusion ramps, benchmarked funds will be required to hold a greater proportion of Chinese assets. And with that comes greater exposure to a deep market with "lots of opportunity for so-called alpha generation or stock-picking capability," Moe says.

This podcast was recorded on June 28, 2018.

All price references and market forecasts correspond to the date of this recording.

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