Morningstar to review China A-Shares for inclusion in emerging markets index

Jun 22nd, 2015 | By | Category: ETF and Index News

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Global index provider Morningstar will review the possibility of including China A-shares in its emerging markets indices at its annual index review in August 2015.

Morningstar to review China A-Shares for inclusion in emerging markets index

China A-shares will be considered for inclusion in Morningstar’s emerging market indices

China A-shares provide exposure to domestic renminbi-denominated Mainland China stocks and represent a significant portion of global assets. While their inclusion would lead to more representative global indices, accessibility difficulties for institutional investors has meant their exclusion up to this point.

Chinese regulators have made progress towards liberalising capital markets with the introduction of the Qualified Foreign Institutional Investor (QFII) scheme in 2002 and the  Renminbi Qualified Foreign Institutional Investor (RQFII) program in 2011, but quotas and restrictive rules have so far deterred index providers from including the shares in their indices.

The announcement follows news that MSCI “expects to include China A‐shares in its global benchmarks after a few important remaining issues related to market accessibility have been resolved.”

Sanjay Arya, Head of Morningstar Indexes, commented: “In spite of several improvements enacted by Chinese regulators to improve the accessibility to the mainland A-Share market, the Qualified Foreign Institutional Investor program is still a long way from being an easily accessible and investable market.”

He added: “The QFII quota has been increased in recent years but still limits the exposure to this market for international investors. In addition, the QFII license approval process is quite cumbersome and unpredictable. The uncertainty surrounding the imposition of capital gains taxes on international investors also remains a major concern.”

Investors looking for exposure to physical China A-Shares could consider ETFs from providers including Source, Lyxor, Deutsche AWM, iShares and ETF Securities.

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