Industry Updates

KraneShares switches index on China A-Shares ETF

The first ETF in Europe to track the MSCI China A 50 Connect index

Theo Andrew

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KraneShares has swapped the index and changed the name of its China onshore equity ETF after becoming the first ETF in Europe to track the MSCI China A 50 Connect index, ETF Stream can reveal.

The KraneShares MSCI China A Share UCITS ETF (KBA) has seen its name changed to the KraneShares MSCI A 50 Connect UCITS ETF (KA50) after it switched from the MSCI China A index.

KA50, which has assets under management of $14m, will see its total expense ratio (TER) remain at 0.40%.

As a result of the changes, KA50 will switch from tracking 483 companies to 50 large-cap stocks listed in Shanghai and Shenzhen while offering a high correlation to China A-Shares benchmark.

According to KraneShares, the index is the first to offer fully recognised futures contracts for Stock Connect-eligible A-Shares, resulting in a reduction in tracking error and bid-ask spreads, as market makers can directly hedge with futures.

It follows the move by the Hong Kong Exchanges and Clearing (HKEX) to allow futures contracts designed for offshore investors on the MSCI China A 50 Connect index last month.

MSCI said the new index will take a two-step approach. Firstly, it will select the two largest stocks from the 11 Global Industry Classification Standard sectors, aligned to the parent index, the MSCI China A index.

Secondly, the remaining 28 constituents are selected from the parent index by index weight, with a buffer of 15 securities “designed to mitigate turnover”.

According to KraneShares, the new index offers greater liquidity than the broad market index because it offers exposure to the most large-cap securities and balanced sector weighting.

Xiaolin Chen, head of international markets at KraneShares, commented: “KA50 will focus on the largest most liquid stocks, which receive the majority of foreign interest and inflows.

“We believe these stocks will continue to be the primary beneficiaries of increased international investment in the years to come.”

Jonathan Krane, CEO of KraneShares, added it continues the long history of partnering with MSCI on mainland China equity ETFs, having launched the first MSCI-linked China A-Share ETF in the US in 2014.

“We are excited to continue the relationship in our UCITS range with the KA50, which provides industry-leading international access to the China onshore equity market for global investors,” he said.

It is the first time KraneShares has updated its ETF range since it launched the KraneShares ICBCCS SSE Star Market 50 Index UCITS ETF (KSTR), the first ETF in Europe to offer exposure to the 50 largest companies in China's STAR market in May.

In January, the firm unveiled a China healthcare ETF, the KraneShares MSCI All China Health Care Index UCITS ETF (KURE).

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