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MSCI China Indices - Methodology for Tracking Stock Movements

The MSCI China indices track the performance of a group of equity instruments over time using the MSCI Global Investable Market Indexes (GIMI). This is done by capitalising on the Price Adjustment Factor (PAF) and the Index Divisors. MSCI country and regional equity Indexes are calculated in local currency as well as in USD. Visit: https://bit.ly/3M5CPm6

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MSCI China Indices - Methodology for Tracking Stock Movements

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  1. Getting China Equity exposure with MSCI China and other indices

  2. Brief introductionto Chinese equities • Historically, investing in Chinese equities has been a complex undertaking, off-limits to many foreign investors. But the market is gradually opening up. • There are several share classes of Chinese equities. Companies incorporated in the People’s Republic of China can issue A-shares, B-shares and H-shares. • The main differences between these share classes are the listing location and the currency in which the shares are traded.

  3. Brief introduction to Chinese equities • Other types of Chinese stocks exist as well, representing shares of Chinese companies incorporated and exchanged outside of China. • Until recently, the onshore Chinese market, A-shares and B-shares, has been mostly off-limits to foreign investors. • However, various programmes introduced by the government over recent years offered foreign investors an opportunity to participate in the onshore market.

  4. MSCI China Indices • MSCI indices are widely used by the global investment community. Driven by the institutional demand for the asset class, MSCI has been steadily increasing the representation of China A-shares in its global indices. • Since MSCI’s initial inclusion announcement in 2018, Chinese onshore equities have experienced billions of dollars of foreign capital inflows.

  5. MSCI China Indices MSCI has several indices that can be used as a proxy for Chinese equity exposure and performance. The MSCI China Index and the MSCI China All Shares Index are the most common. The major difference between the two is the extent of inclusion of A-shares in the investment universe.

  6. MSCI China Indices • While the MSCI China Index has a cap on A-shares inclusion, the MSCI China All Shares does not. While this might seem like a minor difference, it has a substantial impact on the composition. For example, Consumer Discretionary, Communication Services and Financials make up 64.32% of the MSCI China Index. • MSCI China All Shares Index offers more diversified exposure, with the top 3 sectors representing 48.52% of the index, followed by Consumer Staples and Technology both having over 9% allocation.

  7. Getting exposure to Chinese equities For investors looking to allocate capital to Chinese equities, there are two simple and effective options. One is through an ETF tracking one of the major indices. Another option is to use an actively managed mutual fund. Active management could be particularly effective in a market like China. 

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