Appealing: China stocks now attract overseas investors

both onshore and offshore Chinese equities.

The fact that the Chinese stock market is evolving toward a more mature market and becoming more integrated with the global markets is also making Chinese equities more appealing to international investors.

Market players welcomed the beginning of a shift in emphasis toward shareholder returns, the institutionalization of the market and signs of change in China’s dividend culture.

Meanwhile, the stock connect programs that gave overseas investors greater access to the Chinese mainland shares, and the expectation of inclusion of the A shares in the MSCI emerging markets index next year, will likely fuel more positive sentiment.

“As the ownership of Chinese assets becomes more globalized, the positive aspect of that is that volatility may be lower,” said Lacaille.

Ning Jing, portfolio manager at Fidelity International, saw investment opportunities in China’s structural changes.

“The emphasis will be on ‘quality over quantity’ of economic activity in China. We are likely to see a renewed thrust on reforms across State-owned enterprises, as well as in energy pricing and pro-environmental policies,” Ning said in a report.

“I continue to focus on opportunities arising from the long-term structural changes that are underway in China. At the sector level, I have noteworthy exposure to energy, materials and financial stocks.”

Swiss bank Credit Suisse anticipates an approximate

percent

10 percent return on the Chinese equity market in 2018, mainly driven by corporate earnings gains and steady growth of the services sector.

While China may continue to offer compelling investment opportunities in 2018, some analysts are more cautious about potential volatility in the market, highlighting that investors should watch out for tighter liquidity conditions in the new year.

Hong Hao, chief strategist at BOCOM International, expects the A-share market to be tepid in 2018 with bouts of brief volatility due to changes in liquidity conditions.

“Shadow banking growth is curtailed, and the new regulations are targeted at the stock of off-balance-sheet leverage that has been accumulating with increasing layers of complexity to evade regulatory supervision and capital requirements in the past few years,” he said.

Hong believed that investment opportunities will likely emerge in smaller-cap stocks that have underperformed this year.

“Large-caps have run hard in 2017 and their relative outperformance is approaching (an) extreme (end),” he said.

“The rotation from largecaps back to small-caps will zigzag before the trend becomes apparent for most. Some large caps will continue to perform, but it’s unlikely that the strength will be ubiquitous.”