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ETF Specialist

Adding China A-Shares to the Index: What It Means for Fundholders

Vanguard Emerging Markets is adding China A-shares, and MSCI says it soon will, too.

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MSCI announced last night that China A-shares are "on track" for inclusion in its MSCI Emerging Markets Index and that this change could occur before its next Annual Market Classification Review announcement, scheduled for June 2016. When this change occurs, it has the potential to drive billions of dollars into domestically listed Chinese stocks. Morningstar estimates there is $716 billion invested in diversified emerging-markets funds worldwide--$535 billion in actively managed funds and $181 billion in index funds.  iShares MSCI Emerging Markets (EEM) is the largest index fund tracking the MSCI Emerging Markets Index, with $31 billion in assets.

This news comes on the heels of Vanguard’s recent announcement that it will be adding China A-shares to its $67 billion Vanguard Emerging Markets Stock Index Fund and exchange-traded fund (which track a FTSE index). Starting later this year, this Vanguard fund will gradually shift to a new index that will include emerging-markets small caps and China A-shares. When the change is completed, small caps will account for about 10% of the fund, and China A-shares will account for about 6% (using current market prices). Vanguard says that the addition of emerging-markets small caps and China A-shares will help further diversify this fund. This change will be implemented across all the share classes of Vanguard Emerging Markets Stock Index Fund ( Vanguard FTSE Emerging Markets ETF (VWO),  Admiral shares (VEMAX), and  Investor shares (VEIEX)).

Patricia Oey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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