Vanguard announced Tuesday that it is adding China A-shares to its emerging markets index and its ETF ($VWO), the world’s largest emerging-markets ETF.
MSCI is slated to announced next week whether it will China A-shares to its emerging index fund. Most market watchers said that it was unlikely — China stocks are not transparent enough and prices are given to wild swings. The move by Vanguard could pressure MSCI to add the A-shares — all of which will add to demand for the yuan-denominated stocks trading in Shanghai and Shenzhen.
In a statement, Vanguard said:
With the world’s second-largest GDP, China accounts for 20% of global trade and 7% of global consumption. China A-shares will represent 5.6% of the new benchmark for the Emerging Markets Index Fund. Vanguard recently received a quota for China A-shares, which provide exposure to China’s largest issuers and a level of diversification that isn’t otherwise available in the market.
China A-shares are equity shares in mainland China companies that are traded on the Shanghai and Shenzhen stock exchanges and are only available to foreign investors through regulated systems, including the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) systems or the Shanghai Hong Kong Stock Connect program.
“As the first major emerging markets fund to add exposure to China A-shares, the fund will benefit investors with more diversification, deeper emerging markets exposure, and greater access to the growth potential of Chinese equities,” said [CEO Bill] McNabb.
In addition, Vanguard said it would be adding small-cap shares to its FTSE all-cap benchmarks, including the Vanguard Developed Markets Index Fund, European Stock Index Fund, and Pacific Stock Index Fund.
Photo by Wolfgang Staudt via Flickr.