A major provider of smart beta investment tools says Chinese mainland-listed A-shares are not accessible enough to join its indices.
Unlike index providers such as MSCI and FTSE Russell, which have said they will add A-shares to their emerging market indices, Scientific Beta, an initiative of the Edhec-Risk Institute, has concluded that accessibility constraints still “penalise” its global clients.
In a statement, Scientific Beta said it was concerned by the need for derivative products based on A-shares to be pre-approved, by the large number of suspensions affecting A-shares as compared with other emerging markets, and by the daily limit on the Stock Connect scheme. Stock Connect is one of the main ways international investors can buy and sell A-shares.
The index provider also noted that the market for securities lending and borrowing in China is limited.
“The investment community has agreed that the Chinese equity market has undergone substantial changes in terms of accessibility to institutional investors, but Scientific Beta considers that increasing the number of Chinese stocks in an investment universe dedicated to smart beta is not appropriate at this time and could lead to investability issues for non-cap-weighted indices,” said the company.
Instead of including A-shares in its indices, Scientific Beta has made Chinese ADRs (American Depositary Receipts) eligible for inclusion in its universe.
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