BlackRock Inc. and Invesco Ltd are among money managers that can benefit most from increased access to Chinese mainland stocks as their large assets give them an advantage over smaller peers, according to Moody’s Investors Service.
Firms with economies of scale in products such as exchange-traded funds that passively track the performance of stock markets will outrival smaller peers as China opens up trading in onshore yuan-denominated stocks, or A shares, Moody’s said in a report. Krane Funds Advisors, Van Eck Global and Source UK Services that have been among the first to offer ETFs that give foreign traders access to Chinese equities will also be among the winners.
“The inclusion of A shares in global benchmark indices, and the broader ongoing liberalization of China’s capital markets, will likely lead to significant growth in similar index products,” Moody’s analysts including New York-based Stephen Tu said in their report. “Shanghai-Hong Kong Stock Connect is likely to expand in terms of quota size, eligible securities and asset classes, further boosting trade volumes and capacity for investment products with exposure to China.”
FTSE Group said last month that it will include yuan-denominated stocks in two new emerging-market gauges, while MSCI Inc. said June 9 that it will work with Chinese regulators to sort out some issues about market access before adding local shares to its benchmarks. Vanguard Group Inc., the largest U.S. mutual fund firm, said earlier this month it will add mainland Chinese shares in its $69 billion developing-nation fund.
Demand for Chinese equities has increased as the government cuts interest rates to stimulate growth and an exchange link between Shanghai and Hong Kong allows international investors wider access to A shares. The value of Chinese stocks rose above $10 trillion for the first time last week, the latest milestone for the nation’s world-beating rally.
China-based companies such as Harvest Global Investments, China Asset Management Co., CSOP Asset Management Ltd., Bosera Funds and E Fund Management Co. will also benefit as they work with global investment firms to create products for their clients and manage assets locally.
These specialized firms “are also uniquely positioned to take advantage of the growing demand for Chinese equity exposure, the new representation of Chinese A shares in indices, and the general shift of investor flows towards passively indexed vehicles,” the Moody’s analysts said in their report.