Deutsche Bank switches index on China ETF reflecting A-Share inclusion

Dec 1st, 2015 | By | Category: ETF and Index News

Deutsche Asset & Wealth Management (Deutsche AWM), the asset manager behind the db X-trackers brand of exchange-traded funds, has changed the underlying index behind their Deutsche X-trackers MSCI All China Equity ETF (NYSE:CN). The MSCI All China Index is being replaced in favour of the MSCI China All Shares Index to better reflect the eventual inclusion of China A-Shares within MSCI’s index suite.

Deutsche Bank switches index on China ETF reflecting A-Share inclusion

The newly adopted index is fully reflective of the inclusion of all China A-Shares.

Fiona Bassett, Head of Passive in the Americas, Deutsche AWM, commented: “As the first US-listed ETF to provide investors with broad exposure to onshore and offshore Chinese equities through a single ETF, the MSCI All China Equity ETF seeks to provide the most relevant and efficient means of accessing China for US investors. Preparing for the inclusion of A-shares will help us the meet demands of our clients as the Chinese market begins to become more accessible globally.”

Despite being the world’s second largest economy and possessing the world’s second largest equity market by total capitalisation, China has previously been under-represented in global indices. The country currently accounts for 25% of the weighting within the MSCI Emerging Market Index, although the recent decision to include US-listed shares of Chinese firms is expected to boost China’s weighting to 29%. This will occur over a two stage process that is scheduled to conclude in June 2016. The eventual inclusion of A-Shares is estimated to increase China’s market share above 40%.

The internationalisation of Chinese investments is also evident from the recent decision by the International Monetary Fund to include the Chinese yuan as an official reserve currency, joining the likes of the US dollar, British pound, euro and yen. International investors are increasingly demanding renminbi-denominated investment products, and initiatives such as the China Europe International Exchange – a European platform aimed at supplying more yuan-denominated investments including ETFs, have been set up to meet this demand.

China’s emergence on the global investment landscape has gathered pace over the past year due to softer government regulation that allows increased foreign investment in Chinese markets.

The Shanghai-Hong Kong connect, launched in November 2014, allows investors to acquire China A-Shares listed on the Shanghai Stock Exchange by means of trading allowances accessible through the Hong Kong Stock Exchange. The Shanghai Stock Exchange is host to some of China’s largest capitalisation companies.

The Shenzhen Stock Exchange, which generally sees smaller-capitalisation firms listed on its platform, is also expected to open its doors to foreign investors through an upcoming programme, the Shenzhen-Hong Kong connect. The opening of this market may be seen as the final puzzle piece in unlocking A-Share inclusion within MSCI indices.

The MSCI China All Shares Index is fully reflective of the inclusion of all China A-Shares and reflects Deutsche Bank’s pre-eminent move to align the ETF with an inevitable shift by MSCI to update all their indices with A-Share additions.

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