June 9th at 5:00pm Eastern Standard Time, MSCI, a leading provider of index solutions globally, will make an announcement that has the potential to change the face of global investing as we know it. MSCI will announce the results of their year long consultation on the inclusion of the onshore China markets within their definition of China. This definition rolls up into MSCI’s broad-based international indices. We previously wrote a detailed piece about the ramifications of the potential inclusion.
A note from KraneShares’ CIO – Brendan Ahern
In the final hours before the decision is announced, I am compelled to take a moment to reflect on some of KraneShares’ accomplishments as a firm. KraneShares has taken a forward-looking approach to our product development. Together with our Mainland Chinese partners we have strived to take public signals from China’s leadership and translate them to real investment opportunities for our shareholders around the globe.
We build products that coincide with concrete events that take place as China opens up its markets. Let’s take a look at a few events that have already passed, a few that are pending, and the corresponding products we have developed to potentially benefit from them.
Tomorrow night’s MSCI decision on the potential inclusion of the onshore Chinese markets
MSCI’s pending decision regarding the onshore markets has garnered a lot of media and investor attention over the past few months. Though the idea is gaining momentum now, it was obscure and seemingly far-fetched in March of 2014. Back then, the onshore markets were still in the grips of a seven-year bear market, Renminbi Qualified Foreign Institutional Investment quota (RQFII)1 was extremely rare, and the Shanghai-Hong Kong Stock Connect Program2 had yet to be implemented. However, we believed the opportunity presented by a potential MSCI inclusion of the onshore markets was so great that we proceeded to launch a product to capture the off chance it might happen.
We launched the KraneShares Bosera China A ETF (Ticker : KBA) on March 4, 2014, just three months before the commencement of the onshore China market rally, which has since returned 127% since KBA’s inception3 as of 6/1/2015. KBA is currently the only ETF with onshore exposure to track an MSCI index4 – the MSCI China A International Index – which represents the exact securities that MSCI may decide to include into their broad indices. As we have written before, this could mean hundreds of billions of potential inflow into the exact securities KBA owns today.
The Five-Year Plan
One of KraneShares’ foundational beliefs is that the key to success when investing in China is following signals from China’s leadership on the sectors and industries it has targeted to support. Every five years the government issues its Five-Year Plan where it outlines these goals. Our observations surrounding the importance of the Five-Year Plan led us to develop our first product, the KraneShares CSI New China ETF (Ticker : KFYP). We launched KFYP in July of 2013; since then it has exhibited strong performance. We previously wrote a white paper about the significance of the Five Year plan.