Here’s your chance to invest in Chinese stocks
Popular index will soon include 222 Chinese companies
The once-closed door to China’s stock market has been cracked opened a wee bit more.
American investors will soon have a new way to gain exposure to a limited number of home-grown stocks in mainland China and tap the potential growth of the world’s second-biggest economy.
MSCI, a leading global index provider, will now include 222 Chinese stocks, called “A shares,” in its popular emerging-markets stock index, which financial companies have an estimated $1.6 trillion riding on.
Owning a piece of domestic companies in China, home to the world’s second-largest stock market, will be possible this time next year through mutual funds that are run by managers or index funds and ETFs that track the MSCI Emerging Markets Index.
By adding “A shares” to the index, an estimated $10 billion in new cash is seen flowing into Chinese stocks, according to Edmund Harriss, manager of Guinness Atkinson’s China & Hong Kong Fund.
Harriss emphasized that MSCI’s decision reflects China’s mounting clout in the financial world. But he cautioned that China is still far from being a free, open stock market that investors from outside the country can access in its entirety.
“It’s a tentative first step toward opening up the stock mar- kets in China to international investors,” he said, noting that current access to domestic China has been mainly through the “Stock Connect” program launched in 2014 that linked mainland markets with the Hong Kong Stock Exchange. This link also allows foreigners to buy A shares in a less restricted manner than previously. “But there still isn’t full access to the A shares market,” Harriss adds. “China hasn’t thrown open the gates yet.”
Indeed, the small number of mainland Chinese shares being added to the index is just a sliver of the country’s overall stock market. These stocks will also make up just a tiny 0.73% weighting in the index, reducing their effect on its performance.
Currently, U.S. investors’ exposure to Chinese stocks are through companies that trade on Hong Kong (dubbed “H shares”) and U.S. stock exchanges. China’s stocks — excluding A shares — already have the biggest weighing in MSCI’s Emerging Markets Index.