Index provider MSCI Inc. recently completed its initial inclusion of A-shares, the stocks trading on Mainland China, in the company’s international indexes, including the MSCI Emerging Markets Index.
Investors widely expect billions of dollars could help support Chinese A-shares ahead as global money managers adjust their positions to better reflect the new emerging market benchmark changes. The initial implementation was so successful that MSCI is now consulting with clients about the possibility of including more A-shares in its international benchmark, a move that could benefit exchange traded funds such as the Xtrackers CSI 300 China A-Shares ETF (NYSEArca: ASHR) and the KraneShares Bosera MSCI China A ETF (NYSEArca: KBA).
“The 5% initial inclusion of China A shares was successfully implemented in May and August 2018 with overwhelming positive feedback from market participants,” said MSCI.
KBA was the first A-shares ETF listed in the U.S. to track an index constructed by MSCI. Previously, MSCI estimated that Chinese stocks’ index weighting could grow toward 20% in the future if Beijing loosens controls over foreign access.
Increased Inclusion
MSCI is now consulting with clients about including more A-shares in its indexes over the next couple of years. Many of those stocks are members of KBA’s lineup.
“With an increase of the inclusion factor of China A Large Cap securities to 20%, the pro forma index weight of China A Shares in the MSCI Emerging Markets Index would be 2.8% in August 2019,” said MSCI. “The addition of China A Mid Cap securities with an inclusion factor of 20% in May 2020 would increase the pro forma weight further to 3.4%.”
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Previously, Chinese markets strengthened on bets that MSCI could add China A-shares to one of its flagship indices, which could bolster A-shares demand among asset managers who track MSCI benchmarks.
“Full A-shares implementation would boost China’s weight in the MSCI Emerging Markets to around 40% from 30%,” reports Investopedia.
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