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ETFs in MSCI’s New China Index Pressure FTSE’s China A50

US group’s first exchange-traded funds tracking China’s mega-cap index began trading on Monday. Armed with over $4 billion, they are set to rival the FTSE China A50.


The MSCI logo is seen in this June 2017 image by Thomas White, Reuters.

 

Just months after MSCI introduced its China mega-cap index, the first exchange-traded funds (ETFs) tracking the new index began trading in China on Monday, armed with $4 billion, matching the money tracking the long-established FTSE China A50.

The debut of the four ETFs – two in Shanghai and two in Shenzhen – came after the funds, based on the MSCI China A50 Connect Index, raised 26.7 billion yuan ($4.17 billion) in China.

That put the MSCI index, which was launched on August 20, virtually at par with the roughly $4 billion in global ETF money currently tracking the rival FTSE China A50 Index, which was launched in 2003.

Global index publishers are in a fierce battle to woo investors with innovative tools to bet on China‘s giant onshore “A share” market, and MSCI’s big splash will put pressure on FTSE Russell to come up with something new.

Having seen investor interest in its index fade in the past few years, FTSE Russell, part of the London Stock Exchange, said on Friday it had recently launched consultations with market participants regarding the use of its China A index offering, and is reviewing the results for possible changes.

 

New Economy Stocks

The four ETFs that began trading on Monday are managed by China Asset Management Co, E Fund Management Co, China Southern Asset Management Co and China Universal Asset Management Co.

The underlying MSCI China A 50 Connect Index selects 50 mega-cap stocks in the A-share market, and fund managers tracking the index say it adopts a more balanced approach in sector allocation than the FTSE A50.

“The index gives more weight to China‘s new economy stocks, such as new energy, tech and healthcare, while avoiding overweighting of financial or consumer staples,” Jialiang Li, fund manager at Southern Asset Management, which launched one of the MSCI A50 ETFs, said.

The MSCI index is likely to become an investment bellwether for foreign investors as it provides a better reflection of China‘s economy, Li said during a roadshow ahead of the ETF debut.

MSCI has also partnered with the Hong Kong Exchanges and Clearing Ltd in launching futures products based on the MSCI China A50 Connect Index, challenging Singapore Exchange’s SGX FTSE China A50 Index Futures.

FTSE Russell has said that an established ecosystem around the FTSE China A50, including a liquid derivative market, is a “trump card” for its index.

 

• Reuters with additional editing by Jim Pollard

 

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FTSE Russell to include China bonds in flagship index from October

FTSE Russell drops eight China firms from indexes

Adani Group’s share prices on a bull-run on MSCI-inclusion hopes

Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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