UpdateGlobal investors bullish on Chinese big-caps even as ace analyst forecasts subdued movements

Foreign fund managers will probably add holdings of Chinese big-cap companies after the nation’s US$7.7 trillion stock market is integrated into global equities, even as the most accurate analyst predicts stocks will remain subdued through the rest of the year.

Global investors may buy into shares of companies that are less represented in the offshore markets, such as health care, household appliances and liquor makers following MSCI’s announcement last week to incorporate 234 mainland-traded stocks into its benchmarks, according to JPMorgan Asset Management and Man Group.

They are undeterred by a call from Hong Hao, managing director at Bocom International Holdings, who successfully predicted the bursting of the 2015 Chinese stock market bubble, that China’s equity benchmark is likely to be rangebound this year.

Mainland shares “can offer notable heterogeneity and breadth of sector exposure”, said Ed Cole, a portfolio manager at Man Group with US$112.7 billion in assets under management. “For us, one of the key attractions is the potential to find reasonably valued, high-quality businesses across various different sectors that are not represented offshore.”

Cole specifically mentioned shares of white goods appliance makers, new-energy bus manufacturers and airport operators as top picks for foreign investors, without naming individual picks.

While foreign interest seems to be largely limited to big companies trading in the mainland’s stock market, also known as the A-share market, the sector looks increasingly out of favour among local traders. The benchmark Shanghai Composite Index of mostly large caps has dropped 4.2 per cent in 2018 as Chinese investors pull out of the stocks on concern valuations are stretched and trading is too crowded.