Bland, who's firm manages the Chimerica ETF, said following the first phase of the MSCI inclusion of China ADRs (US-listed Chinese companies) in November last year, international investors have had a renewed focus on Chinese stocks.
The second phase of ADR inclusion on the index comes in May, and after that happens, the result could be $50bn in active inflows in the second half of 2016, Bland said. The figure would be separate from an estimated $5bn in passive inflows.
Because the IT sector weight on MSCI China will double in May after full inclusion, Bland believes mainland tech stocks are a good place to be.
“With the first phase of the MSCI inclusion in November, these stocks suddenly got a new identity. Before they came in, there was no technology sector in the MSCI China Index. So in terms of sector weighting, technology has a very low exposure.”
Post-May, technology ADRs are going to end up around 30% of weighting in the MSCI China Index, which he calls "big and substantial".
Other macro factors have the potential to drive the Chinese IT sector, he added.
“You’ve still got a very good rate of inflation in China, and on top of that you’ve got the government supporting the technology sector quite strongly. The realisation of the investment community is boding well for the reweight, because people will take the catalyst of the MSCI inclusion a good reason to buy these stocks.”
He added that the growth rate of Chinese tech companies are generally much faster than their Nasdaq counterparts. "This is unrelated to the rest of the Chinese sectors and the country’s potential slowdown."
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