IF baijiu (白酒, Chinese white wine) is the answer, what’s the question? What we’re all thinking, of course: which sectors should investors watch with the upcoming inclusion of 222 Chinese A-shares in the MSCI Emerging Market Index this June?

According to Ivan Li, research director at DBS Vickers Securities, A-shares in consumer goods and healthcare may perform well in 2018:

“Consumer goods, stocks not listed in Hong Kong, for example, Kweichow Moutai (the producer of Maotai liquor), are very attractive. Foreign fund managers will be interested in looking into these stocks. Whether their valuation is too expensive is another story,” Li says.

Li highlights baijiu as a sector to look at, given the fact that not many companies from this sector are listed in Hong Kong. Silver Base Group is the only baijiu related stock in the H-share market.

More broadly, Chinese analysts suggest investors should be picky, and look into stocks that are not offered in the H-share market, with consumer goods, healthcare and technology as the major sectors to keep an eye on. Li notes that some companies in the industrial sector that are not listed in Hong Kong may also attract foreign investors.

With the upcoming MSCI inclusion, foreign investors have been increasing their holdings of A-shares since December last year. Northbound buying through the Shanghai-Hong Kong Stock Connect has been increasing recently, which indicates that foreign investors are preparing for the inclusion. China Petroleum and Sinopec performed impressively in the A-share market during the first week of this year, with Sinopec surging 15.17% in four days, according to Chinese analysts.

In addition, quite a lot of institutions outside of China have been hiring more analysts who are specialized in the A-share market, in preparation for the MSCI inclusion, according to Li.

China’s technology, media, and telecom (TMT) sectors have been attracting much attention in recent years. However, not all of the stocks in these sectors are promising. “TMT-related equipment producers, such as companies in optical fiber, might be to foreign investors’ interests. But talking about the telecom operators, I do not think that foreign investors will be interested,” Li says.

Tencent is the only technology stock in H-share market. “Technology firms will be another key focus, given the fact that many of the start-up companies are listed in Mainland China rather than in Hong Kong. You will have more choices in A-share market,” Li says.

However, Li does not favour financial stocks. “It does not make a lot of sense to buy financial stocks in the A-share markets. Most of them are listed in the H-share market already, and it is much cheaper to buy them in Hong Kong,” Li says.

Ping An Bank, Bank of Beijing, Bank of Jiangsu, Bank of Nanjing, Bank of Shanghai, Hua Xia Bank, Industrial Bank, are Shanghai Pudong Development Bank are only traded in A-share market. However, Li does not think they are attractive.

“Whether it is Shanghai Pudong Development Bank or Bank of China, it does not make a big difference to foreign investors,” Li says. “The financial stocks probably will not attract the foreign investors. As is the case in the real estate sector. In Hong Kong, there are already more than 50 Chinese property developers. Investors already have too many choices,” Li says.