MSCI, the premier indexing company for international investing, today rolled out an index of the 50 biggest mainland China-listed stocks in a move that may challenge FTSE, which already has a China 50 index that iShares plans to use in a proposed equity fund.
The MSCI China A 50 Index, a tradable proxy for the broader MSCI China A Index, is composed of the largest 50 constituents of the flagship parent index and is ranked by domestic free float-adjusted market capitalization, MSCI said today in a press release.
“We expect the new MSCI China A 50 Index will serve as the basis for a number of index-linked investment vehicles, ultimately providing investors with more choices for gaining exposure to the China A-Share market,” Theodore Niggli, head the MSCI Asia Index business, said in the statement.
The only existing U.S.-listed exchange-traded fund now available that targets China A-shares is the Market Vectors China ETF (PEK), which has gathered $11.7 million in assets.
Also, in January 2011, BlackRock’s iShares, the world’s biggest ETF company, put the iShares FTSE China A50 Index Fund into registration. The fund will be based on the FTSE China A50 Index, which also targets the top 50 firms on the Chinese mainland.
MSCI is no doubt looking to attract the interest of sponsors such as iShares that want to crack into China’s A-shares markets, which many analysts believe may be the best way to tap into the long-term growth story of the world’s second-largest economy.
But, for now, there’s a catch.
A-Shares And QFII
Because funds such as PEK currently can’t legally own the underlying A-shares, they achieve the exposure synthetically, though PEK’s sponsor Van Eck hopes to begin packaging the fund before long using actual underlying shares.
More generally, access to the A-shares market for non-Chinese nationals requires qualified foreign institutional investor status, or QFII. Van Eck has QFII status to the tune of $100 million of exposure, which means it should have no problem keeping trade relatively smooth in PEK—again, a fund with less than $12 million in assets.
Thus, most funds for foreigners investing in China focus on companies listed in Hong Kong, such as the $6.14 billion iShares FTSE China 25 Index Fund (FXI).
The MSCI Index
By including the 50 largest Shanghai- and Shenzhen-listed A shares, and excluding “special treatment” securities—which can raise investability concerns—the MSCI China A 50 Index is a representative and easily replicable alternative to the MSCI China A Index, the indexing company said.
The MSCI China A 50 Index is also designed for reduced turnover, while remaining closely correlated to its parent index and sharing the same quarterly rebalancing schedule with a majority of the MSCI global index families.
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