Unlocking China A-Share Opportunities: Must-See Charts for Navigating the Chinese Equity Market

Subtitle: We have a bonus chart at the end!

Week of March 27, 2023

Datapoints covered in this issue:

• China on-shore equities sector updates: State-owned Enterprises (“中字头”), Digital Economy, Smart Home

• Social sentiments on the real estate market

• Online sales of home improvements & furniture

• A bonus chart

1. Yuan strengthened after the U.S. Federal Reserve enacted a quarter-percentage-point interest rate increase on Wednesday.

Asian currencies firmed, as investors received Fed's message as an indication that rate hikes are nearing an end.

Market Data Snapshot as of Mar 27 2:30am, New York Time

The upside to Yuan is likely to be supported by China's continuing economic recovery. Although some concerns looms, China's consumption, led by offline consumption, and real estate continues to recover in the first quarter of 2023.

On Mar 17, China's Central bank unexpectedly announced a reserve rate cut of 25 basis points, effective on Mar 27, releasing 500 billion yuan ($72.6 billion) of liquidity based on analysts' calculations. While some may question whether a surprise reserve cut signals a weakening economic outlook, we believe it provides a suitable level of liquidity for economic recovery in the months ahead, which is in line with the Chinese government's regulatory effort to maintain a stable and healthy environment for economic and social development.

2. Performance between onshore and offshore Chinese Equities continues to widen.

Chinese equities ETF MCHI (iShares MSCI China ETF, tracking both onshore and offshore Chinese equities) continues to remain lackluster compared to the overall emerging markets (EEM). However, onshore A-shares' (CNYA) year-to-date performance has continued to beat both the broader emerging markets (EEM) and broader Chinese Equities (MCHI), driven by policy continuity and domestic economic recovery.

1) EEM: iShares MSCI Emerging Markets ETF. 2)EMXC: iShares MSCI Emerging Markets ex China ETF. 3)MCHI: iShares MSCI China ETF. 4) CNYA: iShares MSCI China A ETF.

3. We believe that onshore A-shares have greater potential in 2023.

The certainty of policy and regulatory developments creates a stable environment and reduces risks associated with investment.

Year-to-date in 2023, sectors supported by the Party's policies have continued to outperform the market. "中字头" A-shares, or state-controlled companies, are outperforming the market benchmark and expanding the gap in 2023.