What Investors Should Know About MSCI's Rising China A-Shares Inclusion

What does a China A-share increase into the MSCI Emerging Markets Index and other regional indices mean for investors? Matthews Asia's portfolio strategy team offers its views.

What changes are being made to the MSCI indices?

Index provider MSCI is poised to increase the weighting and breadth of China A-shares exposure in its emerging markets index as well as its China index and other regional indices. In total, the inclusion factor will go from 5% to 20%. The three-step implementation process begins in May with a 5% increase of the current 5% inclusion factor. The allocation will increase by 5% in August and by another 5% in November.

In addition to the increase in allocation to the existing securities, MSCI will also increase the breadth of the securities by including 27 ChiNext shares1 with a 10% inclusion factor in May, increasing that allocation to a 15% and 20% inclusion factor in August and November, respectively. Also, MSCI will add 168 mid-cap stocks at a 20% inclusion factor in November. In total, 421 securities will make up 3.3% of the MSCI Emerging Markets Index once allocations are completed in November, an increase from 239 securities, representing 0.72%.

Will these changes impact other MSCI indices?

Yes. While the focus has been on the impact to the MSCI Emerging Markets Index, the changes also will affect all MSCI indices that include China. The changes will be disproportionately larger in Asia-focused indices. The A-share exposure in the MSCI All Country Asia ex Japan Index, for example, will increase from 0.8% to 4.0%, and the MSCI China Index allocation to A-shares will increase from 2.3% to 10.4%. The changes will also affect the MSCI ACWI Index as the allocation to A-shares will increase from 0.09% to 0.42%.