You probably weren’t aware, but yesterday (6.20.2017) China finally (they were denied the last three years) received the approval from MSCI to have some of its “A” shares included in the MSCI Global Standard Benchmarks. For those not familiar with MSCI, they are basically the authority on who gets included in the benchmarks many of the investments we own use; take a look at your international fund’s prospectus–there’s a good chance it’s benchmark is the MSCI ACWI, or MSCI EAFE.
So, what does China’s inclusion mean?
For now, nothing yet. The incorporation of Chinese “A” share stocks will not begin until May 31, 2018 so the indexes will not reflect the new allocation to China until then, but it isn’t unreasonable to see the demand for these “A” shares to increase over the next year in an effort to front run the inclusion in the indexes, along with the actual inclusion in the indexes leading to index funds rebalancing and active funds reallocating to Chinese stocks stay close to the indexes. Now, don’t go out and start buying up Chinese stocks–the risks to investing in China did not all of sudden go away. If you weren’t comfortable owning China before yesterday, then you shouldn’t make any changes to your portfolio.
My expertise in China and the long term impact of the inclusion of its stocks in the MSCI benchmarks ends here…luckily, thanks to a Josh Brown tweet or post, I was introduced to KraneShares. The folks at KraneShares have become my go-to resource for anything China, and since they are the experts in China, I defer to their post today for additional implications of MSCI’s decision.
Additional reading on MSCI’s decision:
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.