The China N-Share Inclusion Countdown Clock
Back on January 15, 2015 – MSCI, a leading provider of index solutions globally, made a huge announcement that received little to no media attention at the time.
MSCI announced that U.S.–listed Chinese companies (N-shares) will be included into their broad-based indices on December 1, 20151. Due to their U.S.–listing, these companies were previously excluded from MSCI’s definition of China within their broad-based international indices. There are trillions of dollars benchmarked to MSCI indices, so a change like the one set to happen on December 1, 2015 has the potential to cause a massive rebalance in the affected markets. Upon inclusion, China N-shares will represent 3.5% of the MSCI Emerging Market Index2.
Please note, MSCI’s China N-share inclusion is different from the Onshore China (A-share) inclusion we previously wrote about. The N-share inclusion process differs from A-share inclusion in that N-shares have a fixed and imminent inclusion date.
Total China N-share market cap is $487 billion3. KraneShares estimates that N-share inclusion will trigger $70 billion to be reallocated to China N-shares4; $35 billion on December 1st, 2015 and $35b on June 1st, 20165. The reallocation will increase total China N-share market cap by 14%6.
Our fund, the KraneShares CSI China Internet ETF (NASDAQ:KWEB) primarily consists of U.S.-listed Chinese companies. KWEB’s holdings cover 98% of the China N-share allocation slated to be included in the MSCI Emerging Market Index7. These 16 stocks represent a 63% weight of KWEB8.
We believe investors interested in capitalizing on the potential 14%+ increase in China N-share market cap should purchase KWEB now and hold until Aug 2016.
For your reference, we will include the China N-Share Countdown Clock in our weekly emails through June 2016 when the second phase of inclusion is complete.
- 1/15/2015 – MSCI CONCLUSIONS FROM THE CONSULTATION ON ENHANCEMENTS TO THE COVERAGE OF THE MSCI GLOBAL INVESTABLE MARKET INDEXES
- MSCI 2015 Market Classification Review, 10 Jun 2015, page 17
- Bloomberg, 25 Jun 2015
- Potential inclusion data calculated based off amount of assets benchmarked to affected indices by China weighting as of 3/31/2015
- MSCI email, “ Implementation of enhancements to the coverage to the MSCI Global Investable Market Indexes”, 12 Mar 2015
- $70 billion reallocated to China N-share ($70b) / total China N-share market cap ($487b) = 14%
- MSCI Provisional EM Proforma
- Based off KWEB holdings as of 6/24/2015