At the Shenzhen Stock Exchange 2026 Global Investor Conference, Shen Li, Head of Onshore Equity Business for Morgan Stanley (Asia) in China and Chairman of Morgan Stanley Futures (China) Co., Ltd., expressed a strong preference for A-share sectors such as high-end manufacturing, hard technology, and biopharmaceuticals. Compared to Hong Kong stocks, A-shares exhibit a stronger independent market trend, making their allocation value more prominent.
The following is the full text of the remarks.
Question: Compared to China's share in global GDP and the trading volume of A-shares in the overall market, the weight and valuation of Chinese assets in international indices are currently at significantly low levels. What is your view on the strategic opportunity of allocating to China?
Shen Li: China's GDP accounts for approximately 17% of the global total and contributes about 30% of global growth. However, its weight in global equity allocations is only 3-5%. Global capital remains systematically underweight Chinese assets, with global funds underweight by roughly 1.3% and emerging market funds by about 5.7%. This is largely due to index underrepresentation (MSCI's inclusion factor is only 20%) and the exclusion of high-quality industrial and technology assets from these indices. From a long-term strategic perspective, this structural mismatch presents significant and sustained reallocation investment opportunities.
We have observed a turning point this year: foreign capital flows shifted from net outflows in 2025 to net inflows, with an acceleration in 2026. Investor perception of China has transformed into a "must-have" allocation.
Long-term strategic opportunities for Chinese asset allocation are timely. Firstly, "AI + technology" as a new quality productive force is becoming a medium to long-term driver of economic growth. China's investment in AI in 2026 is projected to grow nearly 20% year-on-year, reaching approximately 900 billion yuan. Secondly, China's advanced manufacturing leads significantly in new energy vehicles, batteries, photovoltaics, and AI hardware. Its share of global exports is expected to rise to 16.5% by 2030. These factors provide a solid fundamental foundation for China's capital markets. From a valuation perspective, MSCI China's P/E ratio is around 12x, below the emerging market average. With projected earnings growth of 15% in 2026 and exposure to US revenue of only 3.3%, it is an optimal choice for diversification and asset allocation.
Morgan Stanley's China equity strategy is optimistic about high-end manufacturing and hard technology companies in the A-share market, including high-end industrials, artificial intelligence/semiconductors, biopharmaceuticals, materials, as well as insurance and diversified financials. Currently, Hong Kong stocks are highly correlated with global assets and often underperform compared to A-shares, further highlighting the unique value of A-shares.
Question: Compared to other emerging markets, what particular advantages does the Chinese capital market offer in terms of risk diversification and asset diversification?
Shen Li: The Chinese capital market holds a uniquely differentiated position among emerging markets. It possesses a series of distinct characteristics in market structure, investor behavior, and policy dimensions, making it an independent and valuable diversification tool.
The core allocation value of the Chinese capital market lies in its unique attributes of "low correlation + independent cycle + massive scale." This means it does not merely represent a traditional emerging market beta but constitutes an asset class that should be allocated to separately.
On one hand, the Chinese stock market (particularly A-shares) has maintained a low long-term correlation with major global markets. It is less influenced by global macro factors and exhibits lower sensitivity to international financial contagion shocks, effectively reducing volatility in global portfolios. On the other hand, China's economic and policy cycles are relatively independent, not reliant on the US dollar, global interest rates, or commodity cycles, setting it apart from typical emerging markets like India and Brazil.
Simultaneously, as the world's second-largest stock market, China's high weight in the MSCI Emerging Markets Index contrasts with its actual under-allocation, creating a mismatch. In technology and innovation, China continues to make breakthroughs in areas such as artificial intelligence, electric vehicles, pharmaceuticals, and automation—sectors regarded as crucial future growth engines. Rapidly developing new economy sectors like consumption, technology, healthcare, and high-end manufacturing offer investors globally scarce growth opportunities.
From a portfolio construction perspective, including A-shares helps improve the efficient frontier, achieving a better risk-return profile. Current valuations remain attractive relative to developed markets.
China is accelerating the institutional opening of its capital market. During the "15th Five-Year Plan" period, it will continuously optimize foreign investment channels and further open its capital markets, enhancing the investability of Chinese assets. These developments will further elevate the investment value of A-shares as an independent sub-asset class.
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