Although still classified as an "emerging market", the Middle Kingdom has moulted into a global heavyweight in recent decades. The world's most populous country now not only has the second-highest gross domestic product and the largest export volume of goods and services, but is also expected to replace the USA as the most powerful economy by 2028.
As the real economy rose, so did the financial markets. For a long time, the investment universe was manageable, market capitalisation was low and the tradability of shares for foreign investors was severely limited. In recent years, the situation has improved significantly and the Chinese stock market has become more attractive: Today, an investor benefits from the additional diversification potential and the attractive risk-return profile.
China is systematically underweighted
Many investors are already invested in Chinese stocks - often via index solutions that track an emerging market index (MSCI Emerging Markets Index). But does this approach do justice to China's growing equity market? Not really! If one compares the index weight of China equities and the size of the gross domestic product, it quickly becomes clear that China is significantly underweighted in standard indices. This is because Chinese shares are traded on different stock exchanges and not all trading venues are included equally in the index weighting.