Global exchange traded fund investors may see their China exposure rise ahead as MSCI plans to add U.S.-listed Chinese companies to its international indices.
On December 1, index provider MSCI will included all 14 U.S.-listed China stocks in its indices, including prominent Chinese e-commerce names like Alibaba (NYSE: BABA) and Baidu (NasdaqGS: BIDU), Reuters reported.
In total, MSCI will add 14 companies, including Alibaba, Baidu, , Ctrip (NasdaqGS: CTRP), JD.com (NasdaqGS: JD), Netease (NasdaqGS: NTES), New Oriental Education (NYSE: EDU), Qihoo (NYSE: QIHU), Qunar Cayman Islands (NasdaqGS: QUNR), Soufun Holdings (NYSE: SFUN), Tal Education (NYSE: XRS), Vipshop Holdings (NYSE: VIPS), Youku Tudou (NYSE: YOKU), YY (NasdaqGS: YY), and 58.com (NYSE: WUBA), reports Bob Pisani for CNBC.
For ETF investors, this means China country-specific ETFs that track MSCI China Index, which typically leans toward the financial sector, will have greater technology exposure. The iShares MSCI China ETF (NYSEArca: MCHI), which tracks the MSCI China Index, currently includes a 41.5% weight in financials and 14.8% in information technology. Kraneshares calculates that the MSCI China Index tech weight could rise to 27% after the changes.
According to some observers, the information technology services companies, which include the Chinese e-commerce giants, are more reflective of China’s domestic consumption and the growth story in the emerging economy.
Additionally, with the inclusion of U.S.-listed Chinese stocks, the broader iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the MSCI Emerging Markets Index, could have a larger tilt toward China. China currently makes up 23.8% of EEM’s portfolio. After the inclusion of U.S.-listed Chinese shares, the MSCI Emerging Markets Index could see China’s weight rise to 29%.