Earlier this year, China A-shares, the stocks trading on mainland exchanges in Shanghai and Shenzhen were boosted by speculation index provider MSCI could add those stocks to its international indices, including the widely followed MSCI Emerging Markets Index.
MSCI opted against that inclusion, but that does not mean A-shares are off the index provider’s radar. The opposite is true as MSCI remains actively engaged in client discussions regarding what steps need to be taken for A-shares to become appropriate fits for MSCI benchmarks. More than $1.5 trillion in global assets are benchmarked to the MSCI Emerging Markets Index.
Related: China A-Shares ETFs Surge on Renewed MSCI Indexing Optimism
Investors can access Chinese markets directly through options like the VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: PEK), VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: CNXT), iShares MSCI China A ETF (BATS: CNYA) and db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR).
“Currently, few emerging markets strategies offer comprehensive coverage of A-shares,” said MSCI in a recent note. “So by default, many investors have turned to specialist A-shares managers to obtain exposure to that market segment. If A-shares were to join the MSCI Emerging Markets Index and become part of mainstream emerging market portfolios, the current off-benchmark allocation could be absorbed by an integrated emerging markets allocation.”
[related_stories]PEK tracks the CSI 300 Index, which includes the 300 largest and most liquid stocks in the China A-shares market. CNXT includes the 100 largest China A-shares stocks listed on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. CNYA tracks an MSCI index composed of Chinese equities listed on the Shanghai and Shenzhen Stock Exchanges. ASHR also tracks A-shares taken from the CSI 300 Index.
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.
SEE MORE: The ETFs Affected By MSCI’s China Change
“While active investors welcome precision in implementation, passive investors may favor an integrated emerging markets allocation to capture the beta efficiently and precisely. An integrated and consistent benchmarking framework – without artificial divisions – provides a neutral starting point for expressing investment views,” adds MSCI.
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VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: PEK)
