MSCI A-shares Inclusion: impact on Asia ex-Japan equities

20/06/2017

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Andrew Gillan, Head of Asia (ex Japan) Equities, explains the near term impact of MSCI’s decision to include China A-shares in its benchmark emerging markets index.

In the short-term, we expect minimal impact from the MSCI’s inclusion of China A-shares on Asian markets. Blue chip China A-shares have already outperformed this year, partly in anticipation of this event. You may even see some profit taking as a result.
 
It’s important to note, however, that this is a crucial first step for MSCI and acknowledges the progress that China has made in addressing their concerns at the previous three annual index reviews.
 
Given that inclusion will only be implemented in two stages in 2018 and on a 5% partial inclusion basis, this will likely have limited impact on benchmarks initially, but continue to increase China’s weighting in both Asia and emerging market benchmarks over the next decade as the inclusion factor is increased.
 
One risk we would flag for investors is that China will likely continue to increase its weight in regional benchmarks as a result of this decision so there is more concentration risk at a country level particularly for those investors gaining exposure to the region via ETFs and passive allocation. Some of our best investments over the last three years have been China related shares and we will continue to find great opportunities there. We will also look to provide our clients with diversification by country and sector rather than be led by index weights.
 
As such, we don’t foresee immediate impact on our own strategy as we already research and invest in A-shares, but I expect us to increase our allocation to A-shares over time given the depth and choice of companies available in the market.
 
An important point to note is that as active managers, we already have some China A-share exposure across all 3 strategies on the desk – Asian Growth, Asian Dividend Income & China portfolios as we are already willing to invest in all Asian markets regardless of the index weights.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Asian Dividend Income Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Janus Henderson Horizon Asian Growth Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Janus Henderson Horizon China Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

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