I wrote in November about the major changes in the structure of the Chinese capital markets. The “stock connect” made Chinese onshore “A shares” more accessible to investors and opened up a new flow of demand. Since then the ETF which invests in A shares ASHR has risen since then and Chinese stocks have had a huge rally this year.
The A shares ETF ASHR is up 83% since the initiating of stock connect last November (chart below) MCHI the ETF based on the current MSCI china index is up 26.6%
The same is the case for ETF MCHI based on the MSCI China index.
This change can potentially produce significant increase in demand. The reconstruction of most indices impacts market prices although usually before the actual date when the reconstruction takes place.
One of the 2 major index providers FTSE Russell has just announced a transitional index to include Chinese A shares. which will make up 5% of the index
As the article notes:
When and how to include China A shares - yuan-denominated shares listed on the Shanghai and Shenzhen stock markets - has been a major challenge facing global index providers. Inclusion in benchmark indexes could pour billions of dollars into China stocks over time.
Over time the impact of the changes in the index will be dramatic:
The much larger index provider.. MSCI is making changes in its treatment of Chinese stocks as well. Currently only Chinese shares traded in Hong Kong (H shares) are included in the index.
The addition of A shares to the other categories of Chinese shares in the index will increase the China weighting in the emerging markets index from 19% to 28%. It will also impact the overall world and world ex US indices (to a lesser extent) and the Asia Pacific and Asia Pacific ex China (to greater extent ) compared to the emerging market overall index.
ASHR the Chinese A shares ETF is up over 9% since May 15 through May 22 and up another 4.5% as of mid morning May 26...could that be related to the news items cited above ?