SHANGHAI (Reuters) - Chinese asset managers, seeking to get ahead of an expected wave of foreign money inflows, are racing to launch index funds that place bets on a select group of mainland stocks, which will be included in MSCI's emerging market benchmark this year.
The first such product to follow MSCI's inclusion announcement in June is Truvalue Asset Management Co's MSCI China stock index fund, which launched after receiving the regulatory green light earlier this month. Launches from other fund managers are also in the pipeline. While some foreign investors are still haunted by painful memories of China's 2015 stock market crash and concerns about current elevated valuations, a deeper "fear of missing out" is expected to support a surge in mainland stocks.MSCI's decision last June to include yuan-denominated Chinese stocks, known as "A-shares", into its emerging market (EM) index has already boosted interest in China's banking and consumer heavyweights. But an explosion in funds allowing more focused bets will likely add fuel to China's blue-chip euphoria. Truvalue fund manager Chen Long forecasts that the partial inclusion would initially trigger 80 billion yuan ($12.52 billion) of passive investments into China, while an eventual full inclusion will usher in 2.5 trillion yuan of inflows.The fund, which tracks the MSCI China A International Index, would enable investors to get ahead of overseas investors "with just one press of a button," Chen said.Such a strategy has a good chance of success, he said, citing post-inclusion stock performances in markets including South Korea, South Africa and Taiwan. In June and September, MSCI will add around 230 large-cap Chinese stocks into its EM index in a two-stage process. They will represent a 0.73 percent index weighting, with MSCI's 5 percent partial inclusion factor taking China's foreign ownership caps and market accessibility into account.Truvalue's rivals Invesco Great Wall, PingAn-UOB and Huaan have also applied to launch MSCI index funds, which are among about two dozen such products awaiting the regulatory nod.Already, foreign funds with existing exposure to A-shares have witnessed a surge in demand.Four years ago, U.S. asset managers Krane Funds Advisors launched its New York-listed KraneShares Bosera MSCI China A Share ETF