MSCI Dips Toe into China A-share Pool

June 07, 2018 | David Hernandez, CFA, Director of Traditional Manager Search

On May 31, 2018 MSCI decided to add 226 China large-cap A shares to the MSCI Emerging Markets (EM) Index. What is an A share? They are shares of Chinese companies that trade on local Chinese stock exchanges. Historically, foreign investors have had limited — if not zero — access to these markets. Three years ago, China launched its Stock Connect program, improving the accessibility to A shares and prompting their inclusion in the broad EM index. If A shares were just recently added, what constitutes the current 30.5% exposure to China? The China portion of the index is mainly comprised of the following:

  • H Shares – Chinese companies incorporated in China and listed on the Hong Kong stock exchange.
  • Red and P Chip – Chinese companies incorporated outside of China and listed on the Hong Kong stock exchange.
  • Overseas – Chinese companies listed on an overseas exchange, for example Alibaba which is listed in the NYSE.

By September 2018 China A-shares will constitute 0.8% of the index. This exposure represents a 5% inclusion rate of the A Share market and is tiny compared to the 16.2% exposure if MSCI used a 100% inclusion rate. While currently small, investors should expect A shares to become a larger portion of the index over the coming years, increasing the EM opportunity set.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

David Hernandez, CFA
Director of Traditional Manager Search

Get to Know David

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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