According to the latest stock strategy report released by Goldman Sachs on May 20, since hitting a low for the year on January 22, the MSCI China Index has risen by 31%, becoming the best-performing stock market globally in the past three months. China's economy has resilience, and policies in macroeconomics, housing, and capital markets have contributed to the strong performance of A shares. At the same time, Goldman Sachs has raised its 12-month target for the MSCI China Index from 60 points to 70 points and raised the 12-month target for the CSI 300 Index from 3,900 to 4,100 points, maintaining a "buy" rating on A shares. Other foreign institutions such as JPMorgan remain optimistic about A shares.

The attitude of foreign capital can be seen from the performance of northbound funds. Since the end of April, the net inflow of northbound funds has turned positive. After a net inflow of 27 billion yuan in a single week at the end of April, northbound funds have remained in a state of net inflow every week.

Chart: Net inflow of northbound funds on a weekly basis (100 million yuan)

This prediction of the CSI 300 Index target by Goldman Sachs also demonstrates foreign interest in China's core assets.

The handy tools for finding core assets

For investors who want to conveniently lay out A-share core assets, representative broad-based indexes are undoubtedly a "handy" tool.

The newly released CSI A50 Index covers 50 leading companies in the three-tier industry of the CSI, has a balanced industry distribution, a mega-cap style, and has become a core asset index that is highly valued by the market. There are already many products tracking this index, such as the CSI A50ETF E Fund (563080).

Table: Top 10 constituents of the CSI A50 Index

From past performance in different market environments, it can be seen that the CSI A50 Index has had relatively impressive market performance during bull markets or during the process of oversold rebounds.

In addition, since the CSI A50 Index has set up interconnectivity screening conditions for stock selection, requiring constituent stocks to be securities in the scope of the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, foreign capital holds about 7.0% of the circulating market value of the CSI A50 Index constituents. In the future, as the spread between China and the U.S. narrows and foreign capital flows back into A shares, the CSI A50 Index with a higher proportion of foreign holdings may benefit.

Chart: Percentage of foreign market value holdings in the CSI A50 Index

How can the CSI A50 be invested?

Many people refer to valuations and their percentiles when judging the relative high and low positions of indices in index investment.

According to Wind data, the rolling P/E ratio of the CSI A50 Index is less than 17 times. Based on the sample of constituent stocks in the current index, the valuation is at around the 40th percentile of the index's base date.

Historical data of the backtest of the CSI A50 Index shows that the valuation percentile level and the probability of profit are roughly negatively correlated. The lower the valuation percentile, the higher the probability of profit. Moreover, when the holding period is less than two years, valuation has a significant impact on the probability of profit, and when the holding period is more than two years, the impact of valuation is relatively small. However, when the valuation percentile is higher than 60%, decision-making should still be cautious and consider multiple factors.

In other words, buying, accumulating cheap chips at relatively low levels, and holding high-quality assets in the long term can increase the probability of profit to some extent.

Table: Historical probability of profit of investment in the CSI A50 Index at different valuation percentiles