The first casualty of MSCI’s China A shares inclusion is in

by , 28th February 2018

A BlackRock ETF has been sent to the graveyard in what is very likely a response to the inclusion of China A shares in MSCI’s EM indexes, Felix Xu writes. 

BlackRock will delist its iShares MSCI China A International Index ETF (83162) from the Hong Kong Stock Exchange (HKEX), in one of the first casualties of MSCI’s inclusion of China A shares in its famous emerging markets index.

The fund, which was launched in January 2016, was designed to track the performance the MSCI China International Index, a broad-based Chinese index made up of 436 large and mid-cap companies. But this index is becoming redundant thanks to the inclusion of A shares in the widely-followed MSCI Emerging Markets Index. The ETF will cease trading on the HKEX on March 2.

Explaining the closure, a BlackRock spokesman said: “the premise of the underlying index, to provide modular exposure for the inclusion of China A-shares in global indices, no longer exists.

“Following market and shareholder feedback, stock connect is now the privileged route by MSCI to achieve inclusion of A-shares into their broad indices, utilising a different universe of underlying constituents and a different index calculation methodology.”

The stock connect programme allows investors in Hong Kong to trade China A-shares, and Mainland investors to trade Hong Kong stocks.

Like many, Frederick Chu, head of ETF at China Asset Management, believes the launch last October of the MSCI China A Inclusion Index may have driven the delisting.

According to Mr Chu, the MSCI China International Index – the underlying index of the soon-to-be delisted BlackRock ETF – has become less relevant because it’s not aligned with the A-shares included in the MSCI benchmark.

The new index tracks the 232 A-shares that will be progressively incorporated in the MSCI Emerging Markets Index from June 2018.

“With the establishment of the MSCI China A Inclusion Index,  asset allocators will be more eager to use an ETF which consists of the exact stocks being included [in the MSCI Emerging Markets Index], rather than an ETF with 200 more additional stocks,” Mr. Chu says.

“From a strategic point of view, it probably makes sense for BlackRock to take it [the iShares MSCI China A International Index ETF] off [the exchange],” he adds.

In fact, ChinaAMC launched the world’s first ETF tracking the MSCI China A Inclusion Index – the ChinAMC MSCI China A Inclusion Index ETF – on February 7.

Mr. Chu expects the gradual inclusion of A-shares into major world indices makes it mandatory for institutional investors to include A-shares in the portfolio.

The BlackRock spokesman says the company continuously reviews the range of products it offers in the best interests of its clients.

“We believe we offer our clients in Hong Kong a suitable range of A-share investments,” he adds.

BlackRock currently has three A-share ETFs for Hong Kong including  iShares MSCI China Index ETF, iShares FTSE A50 China Index ETF, and iShares Core CSI 300 Index ETF.

BlackRock had US$6.28 trillion in total assets under management as at December 2017.

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