The presence of domestic Chinese equities — known as A shares — on the fund will give investors “more complete exposure to a key emerging economy and the second-largest stock market in the world by market cap”, Vanguard said in a statement..
After the change the group’s main emerging market index exchange traded fund, which has
The formula is based on a new index compiled by FTSE Russell, which is designed to give investors the option of switching their exposure to China at their own pace, ahead of a formal review in September.
Vanguard’s decision comes just days before MSCI announces the results of its annual classification review, in which it has proposed adding Chinese shares to its own emerging markets index with a 1 per cent weighting.
Pennsylvania-based Vanguard will be buying Chinese shares during an eye-catching bull run. Shenzhen stocks have more than doubled this year and Shanghai is up
“There is no doubt that this is a bold move, especially given the level at which China’s A shares are currently trading,” said analysts at Z-Ben, a Shanghai-based financial consultancy.
China’s markets, though still restricted, have opened considerably to foreign participation in the past year, most notably with the launch of the Shanghai-Hong Kong Stock Connect. Since the November debut of the cross-border trading platform, global investors have added
However, most large fund managers continue to access Chinese markets using the twin quota system controlled by the mainland regulator.
Vanguard Australia recently received a licence to buy onshore assets through the renminbi qualified foreign institutional investor (RQFII) scheme.
Investors have voiced concern at the prospect of being forced to buy Chinese shares if MSCI decides to alter its index weightings. MSCI estimates that
“If all index providers announce an inclusion in short proximity, the potential for market dislocation could be quite large,” said Jian Shi Cortesi, investment manager at GAM, in a report.
“Sourcing information is challenging for many investors due to the language barrier, and many are not be prepared to buy A shares.”
Investors added a record $4.6bn to China-related equity funds last week, though most funds remain underweight, according to Goldman Sachs.