Smart beta index provider, ERI Scientific Beta, has announced that it will not be including China A-shares in its indices, however, the community has noted that the Chinese equity market has undergone substantial changes and opened up to institutional investors.
Nevertheless, the company admitted that there were still some accessibility issues such as:
- Derivatives products linked to China A-shares to be pre-approved and can be restricted by the exchange,
- A large number of suspensions affecting China A-shares when compared to other emerging equity markets,
- Even if in April 2018, the daily quota of both Northbound stock-connect programs (Shanghai and Shenzhen) between Hong Kong and mainland China quadrupled to RMB 52 billion, the risk of breaching it during index rebalancing still existed,
- A limited securities lending and borrowing market.
According to Scientific Beta, the inclusion of American Depositary Receipts provided exposure to China while ensuring a good level of liquidity, making the investment capacity and liquidity of the China block to be comparable to the whole emerging universe and the global index.
Scientific Beta’s chief executive, Noel Amenc said: “An investment universe that is dedicated to smart beta needs not only to be representative, but also investable and liquid.”
“The exposure to China in an index can be controlled by creating a China block, not necessarily through an inordinate increase in the number of Chinese stocks, to the detriment of their liquidity.”
