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Why You Should Own China's A Shares Right Now



  • We're starting to see money flow into China's A shares.
  • But it's just getting started.
  • And it's getting easier and easier to invest.

Last June, China’s stock markets took a global step forward.

Global market index provider MSCI announced that it would start including China’s A share market (shares traded on the Shanghai and Shenzhen exchanges) into its MSCI Emerging Markets Index.

As we pointed out at the time, this is a big deal.

MSCI is the world’s most important index provider. Its decisions affect trillions of dollars of trading in the stock market. Fund managers and investors use it as a benchmark to build emerging-market portfolios. So when MSCI adds or removes stocks or countries from its index, a lot of money eventually follows it.

So one of the long-term implications of the news is that there will be a slow wave of money flowing into China’s A share market.

We’re starting to see that now. But there’s plenty more to come.

A trickle, so far…

Despite all the enthusiasm in the financial media surrounding the news, it’s important to remember that the A shares that MSCI is including in its MSCI Emerging Markets Index thus far only represent a tiny fraction of that index.

MSCI adjusts its inclusion in the index to reflect not just market capitalisation of stocks, but free float available to investors, as well as foreign ownership limits on shares in companies and access to market for investors. (China is far from an open market when it comes to access to stocks and ownership conditions.)

In total, Chinese shares will represent about 29.28 percent of this index by August 2018. But 28.55 percent is represented by stocks of Chinese companies trading on exchanges outside of China itself. Only about 0.73 percent of the total index will be Chinese A shares.

Still, this is the start – and the mere act of including A shares has encouraged a rush of funds to

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