Even with some recent strength, the Shanghai Composite is still down 22.5% over the past month, but that decline only tells part of the story.
Amid the most viscous decline in seven years for stocks trading on China’s mainland, scores of Chinese companies announced trading halts to guard against further declines. Those trading halts have prompted a temporary shift in strategy for the KraneShares Bosera MSCI China A ETF (NYSEArca: KBA).
KBA “does not currently expect to continue to replicate” the MSCI benchmark, according to last week’s notice filed with the U.S. Securities and Exchange Commission. Instead, the fund will use a sampling strategy that gives its co-adviser, Bosera Asset Management (International) of Shenzhen, the flexibility to select members of the index “that are not subject to trading halts and are relatively liquid,” Miles Weiss reports for Bloomberg, citing an SEC filing.
The $19.2 million KBA, which debuted in March 2014, is the only U.S.-listed A-shares ETF tracking an index from MSCI.
“KBA tracks the MSCI China A International Index: a free-float adjusted market capitalization weighted index that is designed to track the equity market performance of large-cap and mid-cap Chinese securities listed on the Shanghai and Shenzhen Stock Exchanges. The Index is based on the concept of the integrated MSCI China equity universe with mainland Chinese securities included,” according to KBA’s homepage.
KBA’s co-adviser, Bosera Asset Management, is looking to avoid halted Chinese names while embracing more liquid stocks, according to Bloomberg. Just last week, 1,331 companies, with a combined value of about 40% of the country’s market, have stopped trading on China’s stock exchange, reports Tracy Alloway for Bloomberg.