– Index providers are offering optional A-share inclusion: it is now a competitive decision
– Selling emerging market funds could be easier with direct China exposure – soon to be best practice

Update: Stage one of A-share inclusion has already been completed by Vanguard for its USD59.9bn Emerging Markets Stock Index fund. We believe that it is now simply a matter of time before rival managers – passive and active – follow suit. A combination of new sub-indices, from both FTSE Russell and MSCI , as well as China’s opening inbound access channels has made this feasible for managers. With A-share inclusion at the firm level, Vanguard is showing that EM funds can be better with real China exposure.

Vanguard began to build its A-share holdings in its largest emerging markets (EM) fund in June last year. Stage one of this transition is now complete and mainland equities account for 4.8% (probably the fastest and largest usage of RQFII quota) of the fund’s portfolio. The final stage could take this to …

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