One of the leading index providers is once again looking into adding Chinese A-shares into its developing market benchmark, potentially raising the China exposure of a popular emerging market exchange traded fund play.
MSCI Indexes issued a new “inclusion roadmap,” a consultation paper for client feedback, to include Chinese A-shares in its Emerging Markets Index ahead of the index review in June, reversing its previous stance after stating that it would remove China from its annual review process, the Financial Times reports.
“The reopening of the consultation follows the recently implemented changes by the Chinese authorities aimed at enhancing the accessibility of the China A shares market for international institutional investors,” MSCI said.
MSCI previously chose not to include Shanghai and Shenzhen listed companies or Chinese A-shares to its benchmark Emerging Markets Index last summer after many expressed concerns over their ability to acquire and sell mainland shares.
The new inclusion proposal would allocate 1.1% of MSCI’s global EM index to mainland-listed Chinese shares.
With the potential inclusion of mainland Chinese stocks, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the MSCI Emerging Markets Index, could have a larger tilt toward China and lower weight in other emerging market countries. Currently, among its top country positions, EEM includes a hefty China 23.6%, along with South Korea 15.5%, Taiwan 12.%, India 8.1% and South Africa 6.7%. The emerging market ETF’s current China exposure includes securities listed in Hong Kong and on the New York Stock Exchange. [The ETFs Affected By MSCI’s China Change]