The move comes just a day after MSCI decided not to add China's domestic equities to benchmark indexes.
BlackRock Inc., the world's largest money manager, has introduced its first U.S.-listed exchange-traded fund that gives investors access to A shares just a day after MSCI Inc. decided not to add China's domestic equities to benchmark indexes.
The iShares MSCI China A ETF began trading on Wednesday in New York, tracking companies listed on the Shanghai and Shenzhen exchanges. The fund has an expense ratio of 0.65%, the cheapest among 13 U.S.-listed funds focused on China's A shares.
China's equities were rejected by MSCI amid concern about restrictions on cross-border capital flows, possibly damping enthusiasm toward mainland stocks after investors had increased bets that A shares would be added. ETFs that invest in equity and debt securities traded on mainland exchanges and in Hong Kong posted inflows of $387 million last week, the most since March, data compiled by Bloomberg show.
“The demand for China A-share ETFs is situational, today you don't see any interest and investors leave the market, but as the tide turns the interest could be very high very quickly,” Ilya Feygin, a strategist at WallachBeth Capital LLC, said from New York. “The MSCI announcement could have scared some investors away, but the index provider can't ignore China's market forever.”
The iShares MSCI China A ETF gives investors exposure to the onshore market through New York-based BlackRock's Renminbi Qualified Foreign Institutional Investor Quota. A Qualified Foreign Institutional Investor license, known as a QFII or RQFII is needed for foreign asset managers to buy A-shares.
MSCI's decision to not include China came despite a flurry of measures this year to address the index provider's concerns, including curbs on arbitrary trading halts and looser restrictions on cross-border capital flows. The decision suggests international investors are still uncomfortable putting their money in the $6 trillion market after a botched government campaign to prop up share prices roiled global equities last year.
The Shanghai Composite has dropped 18% in 2016, while Deutsche X-trackers Harvest CSI 300 China A-Shares ETF , the biggest U.S. exchange-traded fund investing in mainland shares, has retreated 17%.