Chinese A-Shares Go More Mainstream

Tom Burroughes

3 December 2019

The global markets index provider portfolio strategist Jeremy Murden said of the change.

“The current Chinese exposure within the MSCI Emerging Markets Index and other indices is heavily weighted to mega-cap internet companies and large Chinese banks. This and future increases in A-shares exposure, and a further broadening of the universe to include small-cap stocks, will allow the indices to better reflect the opportunity set within Chinese equities,” Murden said.

Murden said there was an estimated $1.9 trillion in assets that track the MSCI EM Index as of March 2019. He said the growth of the benchmark weight is likely to translate to inflows to the space and larger exposure from active managers who track the index.

While there has been pressure from US policymakers, led by Florida Senator Marco Rubio, to remove Chinese stocks from indices, MSCI remains focused on the needs of global investors, Murden continued. He noted that MSCI said it will not change existing indices or delay a planned allocation due to political pressure, only to changes in market access.

“We continue to be attracted by the fundamentally sound merits of many local companies listed in China. We realise that many quality A-share companies in growing industries can be priced at rich valuation multiples, however, which makes our experience of carefully vetting them critical. We believe long-term investors can benefit from exposure to A-shares,” Murden said.