Index providers MSCI (NYSE: MSCI) and FTSE Russell recently made waves in the exchange traded funds universe due to their diverging treatment of China A-shares.

In late May, FTSE Russell said it will transition A-shares into global benchmarks. Last week, MSCI said it is postponing the addition of A-shares to its indexes pending China’s ability to clear up some market accessibility issues, though the index provider added if China is successful in those efforts, A-shares could be added to MSCI indexes outside of the providers regular classification schedule. [MSCI Delays A-Shares Addition]

What that means for investors in the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest emerging markets ETF by assets, and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is that VWO is heading toward a 5.6% A-shares allocation while EEM is in wait-and-see mode.

“Vanguard said that it recently received a $1.6 billion initial quota for China A-shares for use in its funds that the company believes will provide exposure to China’s largest issuers and a level of diversification that isn’t otherwise available in the market. Vanguard plans to apply quarterly for additional quota and increase its exposure to China A-shares as it transitions to a new FTSE index. However, with $69 billion in assets currently in Vanguard Emerging Market share classes, we think investors will need watch for how closely it can continue grow its exposure to China as planned,” said S&P Capital IQ in a recent note.

EEM currently has a China allocation of about 25.1%, nearly 1,100 basis points above South Korea, the ETF’s second-largest country weight. VWO devotes 28.7% of its weight to Chinese stocks. Speaking of South Korea, Asia’s fourth-largest economy highlights another important difference between EEM and VWO.

“For the past year, the biggest difference between Vanguard and iShares emerging market ETFs was the exclusion of South Korea in the Vanguard products,” said S&P Capital IQ. [Vanguard Tinkers With Some International ETFs]

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