China A-Shares Still on MSCI’s Radar

Earlier this year, China A-shares, the stocks trading on mainland exchanges in Shanghai and Shenzhen, rallied in anticipation of index provider MSCI potentially adding those stocks to its international indexes, a move MSCI passed on.

However, MSCI is still monitoring A-shares for inclusion in widely followed benchmarks, such as the MSCI Emerging Markets Index. MSCI begins including China A-shares in its indices, Chinese shares would make up 1.1% of the indexer’s popular Emerging Markets Index tracked by $1.5 trillion in global funds, the Wall Street Journal Reports. HSBC projected the inclusion could add an additional $20 billion to $30 billion into Chinese stocks over the next year.

Chinese A-Shares are a specific class of equity securities issued by Chinese companies and denominated in RMB. Under current Chinese regulations, foreign investors may access A-Shares if they are a designated foreign institutional investor or gained access through either the Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) programs.

“The start of the Shenzhen-Hong Kong Connect, a stock-trading link that will give foreign traders broader access to China’s $6.5 trillion market, could help address repatriation issues international investors face, the index provider said in a statement Thursday,” reports Elena Popina for Bloomberg.

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).

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.

“The announcement comes after MSCI in June cited accessibility issues among the reasons its decided not to include mainland-listed stocks, or A-shares, in its global benchmark indexes, a blow to government efforts to raise the profile of the country’s markets and increase the international importance of the yuan. The results of the next index review are expected in June 2017,” according to Bloomberg.

For more information on Chinese markets, visit our China category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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