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China ETFs: MSCI Considers Upping A-Shares Exposure in Global Indices

This article was originally published on ETFTrends.com.

Chinese equities and China A-shares ETFs could gain momentum as MSCI Inc. considers sharply raising the importance of mainland Chinese stocks in its benchmark global indices next year.

MSCI has proposed plans to raise mainland-listed China company stock weights to 2.8% for the widely observed MSCI Emerging Index by August 2019 and 3.4% by May 2020, compared to 0.7% now, the Wall Street Journal reports.

“This reflects the broader trend of global investors getting keener to include Chinese assets in their portfolios, because after all we have strong companies that are only listed domestically,” Jacky Zhang, an analyst at BOC International, told the WSJ.

China company share contributions to MSCI indices are capped at 5% of the market value of their freely traded shares, whereas for more established markets like South Korea, the “inclusion factor” is 100%.

MSCI proposes quadrupling the China A-shares cap to 20%

In a statement late Tuesday, MSCI proposed quadrupling the China A-shares cap to 20% through a two-step process in May and August 2019. Full inclusion of Chinese mainland stocks will likely take five years and could bring about $350 billion more into China, according to UBS Global Wealth Management estimates.

Furthermore, MSCI intends to include stocks listed on Shenzhen’s ChiNext, a Nasdaq-esque board heavy with tech firms, eligible for the provider's bencharmk index starting in May. Midsize mainland stocks could also be included in 2020.

FTSE Russell is also cogitating over whether to classify China A-shares as "secondary emerging," which would put the shares into its own flagship emerging market index.

As the demand for Chinese mainland stocks rises, the move for broader inclusion could be beneficial to an array of exchange traded funds that cover the Chinese A-shares market, including the VanEck Vectors ChinaAMC SME-ChiNext ETF (PEK) , VanEck Vectors ChinaAMC CSI 300 ETF (CNXT) , iShares MSCI China A ETF (CNYA) and db Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) . These ETFs track China-listed company stocks on the Shanghai and Shenzhen Stock Exchanges.

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