Two months after Chinese e-commerce giant Alibaba (NYSE: BABA) went public, talk still swirls regarding which index providers will make changes to accommodate the stock and when those adjustments could occur.
The chatter is understandable as shares of Alibaba have surged more than 60% since the Sept. 19 initial public offering. “Now many index funds are considering changes to include Alibaba, but it’s still unclear when that’s going to happen. Investors who expect to see changes in the inclusion methodology are better off initiating a “risk reversal” strategy on ETFs,” reports Vikas Shukla for ValueWalk.
The issue surrounding Alibaba’s inclusion in benchmarks followed by several well-known China and emerging markets exchange traded funds is that the company does not have a listing in China, its home country. That is the same reason Baidu (NasdaqGS: BIDU), the Google of China, is absent from some noteworthy China and emerging markets ETFs.
For now, FTSE Group and MSCI (NYSE: MSCI) are not allowing Alibaba into their indices, keeping the stock from well-known ETFs such as the iShares China Large-Cap ETF (NYSEArca: FXI), iShares MSCI China ETF (NYSEArca: MCHI) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), though some observers speculate that index providers may be forced to make changes to accommodate Alibaba or risk losing investors.
In September, just days before Alibaba’s IPO, MSCI said it is mulling changes to its index rules that could lead to the inclusion of Alibaba. However, those changes, if approved, would not be reflected until March 2015. [MSCI Indices Could Add Alibaba]
The SPDR S&P China ETF (NYSEArca: GXC) appears to be a lock to eventually hold Alibaba.