Evidence of the Diminishing Return in Macro Bet Strategies When Using Chinese Equities as a Stand-Alone Asset Class

Eric Girard, Anthony Pondillo


This study investigates whether Chinese equity markets can be considered as a standalone asset class in a well diversified global strategic allocation portfolio. Examining the evolution of the differences in return, risk, and correlation between China and other markets, we find that Chinese stock markets have steadily been providing fewer diversification benefits from 1992 to 2013. Further, we find that global risk factors— global economic and financial risk factors-- have become increasingly important in explaining Chinese stock returns, largely dominating local risk factors by a margin of three to one.  We conclude that while Chinese equities provides some diversification benefits, portfolio managers should not look at Chinese equity markets as a distinct asset class, but rather include Chinese stocks within a global sector/industry allocation investment policy.


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ISSN : 2251-1555