From June 1, 2018, MSCI began including domestic Chinese-listed stocks within a number of its equity benchmark universes.
The initial impact of the inclusion of China A-shares in both emerging market and global equity indices is limited. However, over the longer term, the inclusion is likely to have a material impact on equity benchmarks and client portfolios, particularly in emerging-market focused portfolios where China could become in excess of 40% of the reference benchmark.
Investors should discuss the consequences with their emerging market equity manager(s), specifically regarding how they are responding to this development. The China A-share market has a number of appealing features; however, at this stage for most investors, we recommend achieving this through a broad global or emerging market portfolio.
In our view, meaningful exposure to the China A-share market at this stage should only be considered by investors with a genuinely long-term investment horizon, tolerance for volatility and the governance budget to engage in manager selection and the ongoing monitoring process.
Index Sector Exposure (May 2018)