China exchange traded funds (ETFs) slumped Monday following news that index provider MSCI Inc. is postponing the transition MSCI All China Indexes to the MSCI China All Shares Indexes for nearly six months.
ETFs focusing on China A-shares, the stocks trading on mainland China, slipped Monday. The VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: CNXT), KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) and the Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) all traded lower by more than 2% in early Monday trading.
Earlier this year, MSCI announced it would boost the exposure of A-shares in its international indexes, including the popular MSCI Emerging Markets Index, which sent the aforementioned ETFs and others soaring.
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.
What’s Next for MSCI?
“MSCI will delay the transition date from June 1 to Nov. 26, in order to ‘provide additional time for implementation, it said in an announcement on Friday. As part of the transition, the MSCI All China Indexes will be discontinued on Nov. 27,” reports Caixin.
Earlier this year, MSCI said it would boost the inclusion factor of mainland companies in its benchmark indices to 20% from previous cap of 5% in three-step process that was slated to start in May.
“The transition aims to align two index methodologies with similar objectives that cover China-related shares and discontinue MSCI All China Indexes that are based on multiple methodologies, MSCI said in a proposal released in January 2018,” according to Caixin.
ASHR seeks investment results that track the CSI 300 Index that is designed to reflect the price fluctuation and performance of the China A-Share market. In essence, it’s composed of the 300 largest and most liquid stocks in the China A-Share market, including small-cap, mid-cap, and large-cap stocks.
KBA seeks 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.
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