KraneShares A-Shares ETF Broadens Mandate With Index Swap

The KraneShares Bosera MSCI China A ETF (NYSEArca: KBA), one of the largest US-listed exchange traded funds with exposures to the stocks trading on Mainland China, is broadening its investment mandate by moving to the MSCI China A Index, a shift that occurred at the end of May.

KBA’s transition to the new index happened in accordance with index provider MSCI completing the first round of three including A-shares stocks in international benchmarks. Earlier this year, MSCI announced it would boost the exposure of A-shares in its international indexes, including the popular MSCI Emerging Markets Index.

“The move occurred the same day that leading global index provider, MSCI, completed the first step of the three-step 2019 inclusion process of Shanghai and Shenzhen listed securities (A-Shares) into their Global Standard Indexes,” according to a statement from KraneShares. “By the end of 2019, MSCI’s definition of China will include 264 large-cap and 172 mid-cap A-Share securities, including 30 securities from the ChiNext board; increasing the inclusion factor from 5% to 20%.”

Chinese Markets More Important Than Ever

Previously, KBA sought to provide investment results that correspond to the price and yield performance of the MSCI China A Inclusion Index. The index reflects the Chinese renminbi -denominated equity securities listed on the Shenzhen or Shanghai Stock Exchanges or A Shares included in the MSCI Emerging Markets Index, assuming that index’s methodology permitted the full inclusion of A Shares.

Earlier this year, MSCI said it would boost the inclusion factor of mainland companies in its benchmark indices to 20% from a previous cap of 5% in a three-step process that was slated to start in May.

“The MSCI China A Index captures large and mid-cap equities listed on the Shanghai and Shenzhen stock exchanges and reflects a 20% inclusion factor for China A large-cap, mid-cap, and eligible ChiNext shares,” according to KraneShares. “There are a total of 436 constituents giving investors diverse exposure to A-Shares.”

Global investors traditionally accessed Chinese company stocks through listings through Hong Kong or New York Stock Exchange, but the recent inclusion of mainland Chinese A-shares to these widely observed global benchmarks now makes Chinese markets more important than ever, potentially opening up a closed off market to a huge pool of potential investors. MSCI’s decision could attract tens of billions of dollars into China, the world’s second largest economy.

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