MSCI announces first China A shares for emerging markets index

May 17th, 2018 | By | Category: Equities

MSCI, a leading provider of indices to the ETF industry, has revealed the first wave of China A share companies to be included in its flagship MSCI Emerging Markets Index.

MSCI China A Shares 2

China A shares are listed on either the Shanghai (pictured) or Shenzhen stock exchanges.

In June 2017, MSCI announced it would partially include large-cap China A shares – Chinese equities listed on mainland China stock exchanges – in the MSCI Emerging Markets Index and the MSCI ACWI Index.

It said the decision was undertaken as a result of the positive impacts on China A share accessibility of both the Stock Connect programme and the loosening of pre-approval requirements that have restricted the creation of index-linked investment vehicles, such as ETFs, globally.

As of 1 June 2018, MSCI will add 234 China A shares at 2.5% of their FIF (Foreign Inclusion Factor) adjusted market capitalization. This inclusion represents aggregate weights of 1.26%, 0.39%, and 0.10% respectively of the MSCI China Index, the MSCI Emerging Markets Index, and the MSCI ACWI Index. A full inclusion would see China A shares account for approximately 16% of the emerging markets index.

Among the new additions are giant banking firms Industrial and Commercial Bank of China and China Construction Bank, China’s first and second largest banks, respectively. Oil behemoth PetroChina, China’s largest oil producer, is also being included.

There will also be 11 additions to, and nine deletions from, the MSCI China A Inclusion Index resulting in 234 index constituents. The index was launched in March of this year to help investors prepare for the next step of the China A share inclusion process.

The second step of the inclusion process will coincide with MSCI’s August 2018 Quarterly Index Review, effective 3 September 2018, when the representation of the FIF-adjusted market capitalization of China A shares will increase to 5%. The two-step inclusion process is being used to account for the existing daily trading limits on Stock Connect.

There is over $1.6 trillion in fund assets either benchmarked to, or passively tracking, the MSCI Emerging Markets Index. In the ETF space, it is used as the underlying reference for giant ETFs such as the $50bn iShares Core MSCI Emerging Markets ETF (IEMG US). IEMG offers low-cost access to the popular index with an expense ratio of 0.14%.

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