MSCI unveils first China A-shares to be added in EM index

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MSCI has announced some 234 China A Large Cap stocks will be added to the MSCI EM Index through a two-step inclusion process, each weighing 2.5%.

China A-shares will represent – on a pro forma basis – around 0.78% of the weight of the MSCI EM Index.

The first 2.5% inclusion step will coincide with the May 2018 SAIR, effective 1 June 2018 while the second part of China A-shares’ inclusion will occur on 3 September 2018, as part of the August 2018 Quarterly Index Review (QIR).

Several large financial institutions such as Bank of China will be included in the index but also among others, oil and gas company Petrochina and airline company Air China.

Recently, Schroders’ Jack Lee, head of China A-Shares Research and lead investment manager in the Asian equity team, highlighted at the occasion of the Schroders China A-Shares fund launch that “the opening of the ‘Stock Connect’ is providing one of the best opportunities for investment in what is an often a misunderstood market.”

“Through our investment lens, we are able to identify exciting opportunities in the dynamic mid to small cap space, particularly within the fast-growing sectors such as technology, healthcare and the consumption space.

“It is in the mid to mid cap space that the onshore China market features many compelling companies that demonstrate a combination of strong management and product/service leadership in the fastest growing (soon to be the largest) internal marketplace in the world.”

Discussing about China A-Shares in the last edition of InvestmentEurope, Jan Boudewijns, head of Emerging Market Equities at Candriam, says he and his team have already done some extensive analysis and research related to the coming inclusion of the A-shares in the MSCI indices in June.

“Of course, even with the inclusion of many new stocks, the overall exposure or weight of the A-shares in these indices will still be very limited in first instance and year(s).”

“The inclusion of the A-shares will essentially mean an extension and widening of the available Chinese investment universe, and therefore the China exposure will continue to be made by all kinds of Chinese stock classes, depending on their merits and investment potential. Of course in first instance the investment in some A-shares could have a slight impact on the H-share exposure, but mainly depending on the overall exposure on China we will decide within the overall Emerging Markets strategy,” Boudewijns explains.

More fund managers and selectors views on China A-Shares were canvassed by InvestmentEurope here.