How is investing in China opening up greater opportunities?

Greater China is the world’s second- largest equity market, with a total market capitalization of nearly (USD) $6 trillion, larger than that of all other emerging markets combined. More- over, China A-share equities represent the most liquid equity market in the world, surpassing both the NYSE and NASDAQ in annual trading value.
 China’s sizable and fast-growing economy has historically been attractive to many investors, but under- weighted in their portfolios. This has been partially due to limits on foreign investors by Chinese authorities, and resulting allocation limits within standard indices. However, government reforms, coupled with tangible steps by a major index provider, may now open the door to a historic increase in Chinese equity exposure. These changes, combined with low valuations and a budding recovery in corporate earnings, set the stage, we believe, for increased opportunity in the Greater China marketplace.
 Over the past several decades, the MSCI (Morgan Stanley Capital International) indices have added new countries/markets as they have opened up to global investors. At present, China rep- resents only approximately 20 percent of the MSCI EM (Emerging Markets)index. However, on a GDP-weighted basis, China’s representation would be roughly 37 percent. Because the MSCI EM index is primarily based on market capitalization and historical free float, it is not representative of China’s relative DP weighting. This gap underscores the mismatch we see between China’s current weighting and its economic importance.
 Our belief is that China A-shares will soon join the MSCI EM index list. MSCI estimates that USD)
$7 trillion worth of assets is benchmarked to various MSCI indices globally, of which $1 trillion is tied to the MSCI EM index. A 10 percent weighting to China A-shares translates into $100 billion gradually flowing into the A-shares market from both foreign passive and active investors.
 From a valuation standpoint, Chinese equities are at levels that are among their lowest in 10 years—which we believe represents a compelling opportunity for bargain hunters. As of late September 2014, the CSI 300 index, representing domestic China A-share- listed Chinese equities, is trading at 9.9 time forward earnings versus the historical average of 16.6 times.
 While the pace of economic growth has been slowing gradually since 2010, it’s largely the result of the Chinese government’s plan to transform the economy from investment- and export- led to domestic consumption-driven. Given this change, we actually view the slowdown favorably because it provides some breathing room for the transformation to occur. In the next three to five years, China is expected to be the only major global economy to sustain real GDP growth of over 7 percent, making it a principal driver of world economic growth.
 Neuberger Berman’s Greater China investment team is located in Hong Kong and Shanghai, with a majority of the research analysts based out of Shanghai. Our local presence allows us to understand the local trends, language, laws, customs and culture. Pol- icy changes are an integral part of how the China market behaves, and our ability to stay abreast of these issues gives us an edge. Our research analysts also spend a lot of time on the road, meeting in person with management teams,
competitors and suppliers and providing us with invaluable insights that would be difficult to obtain were we based elsewhere.