'MSCI’s decision not to include Chinese A shares — those listed on the mainland rather than in Hong Kong — in its global emerging market index kicks the can down the road for the time being. Its new proposal points to May 2017 as the likely date, although the door has been left ajar for an earlier move.
'MSCI’s initial plan calls for a small allocation to mainland China — equal to 1.3 per cent of its global emerging markets index. Russia, by comparison, would have a weighting three times larger, while Taiwan would be almost 10 times bigger.
'However, the ultimate goal of giving Chinese A shares a 20.5 per cent slice of the EM benchmark is already raising worries about a future index swamped by a single country. When added to offshore listings, Chinese companies would make up 43.6 per cent of the EM index, according to MSCI’s inclusion roadmap.
'Arthur Kwong, head of Asia equities at BNP Paribas Investment Partners, warns that such a scenario would risk “massive overlap” between pan-Asia, global EM, and China-only funds.
'“My concern is that MSCI inclusion will make China too big as a country. It will be like buying a China fund,” he says. “Will we be able to diversify in an absolute sense?”'