China’s domestic A-share market reflects the country’s evolving economic landscape. Baillie Gifford is enthusiastic about the opportunities presented by the A-share market despite recent volatility and challenges. 

“A decade ago, sectors such as real estate, mining, and financial services formed the bulk of the A-share market. Now, companies from fast-growing areas, including IT infrastructure, biotechnology, and semiconductors, are replacing them,” writes Qian Zhang, client service director at Baillie Gifford. 

“Many of the best companies in these fields can only be found in the A-share market,” he adds. 

According to the asset manager, while A-shares offer diversification benefits due to their low correlation with international markets, they come with China-specific risks, such as domestic regulation and geopolitical tensions. However, Baillie Gifford believes that focusing on areas where public policy aligns with companies’ profit motives is crucial in identifying opportunities.

Meanwhile, Zhang highlights that China’s A-shares will benefit from the fact that China’s Gen Z consumers have unique preferences, favouring domestic brands in cosmetics and other sectors. Companies like Proya stand to benefit from this trend, he adds.

On IT infrastructure, Baillie Gifford contends that China’s growing software and hardware needs, along with international tensions, favour local IT suppliers. “Localisation and digitalisation are two driving forces that put China’s IT sector in the spotlight,” says Tony Wang, an investment analyst and a member of the China A-shares team at Baillie Gifford

Subsequently, the asset manager talks about how China’s A-shares will benefit from the country’s innovative healthcare sector. China’s healthcare needs are immense, particularly in managing chronic conditions like diabetes. Sinocare’s continuous glucose monitoring technology addresses a significant problem and represents a compelling investment opportunity, adds Ballie Gillford. 

Besides, Zhang also touches upon the importance of Industrial upgrading and energy transition in China and lists down companies that stand to benefit from these trends.“Green technology leader LONGi and industrial automation pioneer Inovance are among the domestically listed firms reflecting the unique growth prospects of a changing China,” says the asset manager. 

Read the full insight here.