MSCI attributed its decision to push off on China A-shares inclusion to accessibility of the A shares market for global investors, despite significant regulatory improvements out of Beijing. Specifically, China’s quota system remains a major hurdle for fund investors in the event of redemptions.
“I’m very happy that MSCI called it out,” Karen Wong, head of equity portfolio management at Mellon Capital Management, told the Wall Street Journal. “They [the Chinese authorities]have probably only done half of what MSCI has asked for.”
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While MSCI index-based ETFs do not include China A-shares exposure, a popular FTSE Russell Index-backed emerging market ETF does. The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) has been tracking a new FTSE transition index that begin building exposure to small-capitalization stocks and China A-shares before finalizing the switch to the FTSE Emerging Markets All Cap China A Inclusion Index, which will eventually include about a 5% weight in China A-shares. VWO held about a 28.4% tilt toward China and 0% in South Korea since the FTSE classifies South Korea as a developed market.
For more information on the developing economies, visit our emerging markets category.