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Vanguard Moves First to Add China A-Shares

The fund company's emerging-markets index fund and ETF will eventually have a hefty China allocation.

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Patty Oey: The Vanguard Emerging Markets Index fund, which includes the ETF VWO, is by far the largest emerging-markets fund, with over $65 billion in assets. In early June, Vanguard announced that it will be making a change to this fund. Starting later this year, it will begin to track a new index that includes onshore China A-shares.

There has been a lot of volatility in the onshore China A-share market. After a 150% rally in China A-shares in the 12 months up to mid-June 2015, China A-shares tumbled about 30% in the subsequent three-week period. The rally was driven by looser monetary policy in China and a strong pickup in domestic investor trading activity ahead of anticipated large foreign inflows, such as this Vanguard fund, as China liberalizes its capital markets. Trading activity was further fueled by a surge in government-endorsed margin lending by local brokerages to domestic Chinese retail investors.

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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