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Will Your ETF Be Buying More China Shares in June? - YouTube
Channel: Morningstar Europe
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hello and welcome to the Morningstar
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series ask the expert I'm Emma wall I'm
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joined today by Jackie choy
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morningstar's head of ETF research and
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Asia hi Jackie hi Emma
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so finally after some years of
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speculation the index provider MSCI has
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confirmed that from June it will be
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including China a shares in its China
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index and its emerging markets index
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thought perhaps first we could recap
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with what are China Asia shares so
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Chinese shares are companies
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incorporated in China and listed on the
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Chinese exchanges so the re trying
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Shanghai Stock Exchange in these centres
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Stock Exchange only available to
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domestic Chinese investors and I think a
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lot of investors don't realize that that
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when they are buying a China fund quite
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often they're not buying stocks that are
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listed in mainland China they're buying
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stocks that listed in hot here in Hong
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Kong which are called China H shares
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that's correct so there are different
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class of shares for Chinese companies so
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it's a bit of history in there but I
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ensured there are different us the same
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company let's offer enclosure shares HS
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and HS not all companies have a chairs
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or Asia's but a lot of them only have a
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shares so only available on the Chinese
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exchanges and there are also different
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sort of Chinese complete listed
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elsewhere for example Alibaba R is only
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available in the US market and what
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impact will MSCI including these ashes
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have on in particular investors in ETFs
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and passive funds so the change yourself
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at the very first place is only a very
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little amount in number terms if you
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look at the inclusion only super 7 3 % I
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would be included into the MCM index of
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your County Asia's at the first time
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when it's included but this is just will
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only increase as time goes on and so I
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suppose in a nutshell that means that
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investors in these ETFs
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into ETFs that track these indices will
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suddenly have a much higher exposure to
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China than they did before that's
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correct so that killin week increase so
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as I mentioned some su 23% and
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increasing going forward the reason why
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that this could increase is because MSCI
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is either only to include five percent
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of the market cap of that 220 to large
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cap companies in a Chinese Asia is into
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the MSC IEM index so when as and when
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they include the mid caps and also
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increasing that 5% market cap sort of
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frassle the percentage will increase
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that soon put 7 3 percent will increase
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I suppose the big question is is this a
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good thing it's a good thing to have
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more China shares in particular
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Asia's in these portfolios well it
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depends on your view in the Chinese Asia
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market that's for one but in the others
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perspective you look at from a lid from
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a portfolio construction perspective
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this could provide you with some kind of
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education benefit because if you look at
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the MSC atrani index which is the
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version without the Asia's historically
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the correlation with the rest of the
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world I'm a seer world is around 80
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percent the MSCI China a index the only
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a shared version is around 60% with the
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rest of the wall so combining the a
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shares into the MSC IEM index that could
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provide investors with little bit of
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additional duplication benefit I suppose
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the big question also is is this going
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to affect absolutely all individuals who
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invest in passive funds and ETFs in
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emerging markets in China well that's a
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very good question Emma so remember this
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it's change is only for MSC is index
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given by MCA obviously so for each year
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so pass offense tracking the MSC IEM
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index or the MSC attorney index these
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will be affected from June 2018 ACS
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would be included but if an ETF is
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tracking the say for example of in
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EMV index this would not be affected and
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so how do you tell for example looking
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at the two largest providers of ETF
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globally iShares and Vanguard
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whether you will be impacted by this
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change so investors should really look
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at the not just the name what they eat
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did you look at what index they're
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actually tracking for that particularly
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ETF if even I shares a brain guard if
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they track in the MSCI in am index very
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likely they were including a shoes are
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very immediately but I if they track it
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4c index that would be a different story
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and bear in mind that there are
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different versions of the indices as
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well for example Vanguard the Vanguard
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emerging market index ETF our video VW
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they already included Asia's into their
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ETF back in November 2015 because they
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use different version of the index so
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you may find actually if you invest in
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that ETF you already have a shows
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exposure that's correct so look at the
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index not just the name of the ETF
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Jackie thank you very much you're
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welcome Emma this is em all for
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Morningstar thank you for watching
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