China’s GDP recorded growth of 18.3% y-o-y in the first quarter of this year, according to the country’s National Bureau of Statistics. This is due largely to the low base recorded during the early stages of the pandemic in the same period last year. However, the global economic recovery is also accelerating China’s economic growth.
China is under-represented in the global indices
So why is China a sleeping dragon? This is because global investors have to date been able to make only relatively small direct investments in the A-share market. One reason is China’s under-representation in global stock indices, compared to the size of its economy and financial market, and this situation is expected to continue. If foreign capital only focuses on passive index investment, this may be insufficient investment in China’s stock market. For example, the International Monetary Fund (IMF) estimates that China accounted for more than 16% of global GDP in 2019, surpassing the EU’s 15.4%. Yet, China accounts for only about 5% in the MSCI All Country World Index (ACWI). It is an imbalance that is expected to continue.