MSCI and FTSE Russell, two of the largest index providers, will soon begin increasing exposure to companies listed in China. The increases will force asset managers to purchase shares of Chinese companies to match their changing benchmark.
As a result of the changes, investors in index mutual funds and exchange-traded funds will soon have even more of their money invested in China. The country is already the largest slice of both FTSE Russell’s and MSCI’s emerging-markets indexes, accounting for more than 30% of the portfolios. The exposure is being ramped up even as the U.S. and China engage in a tit-for-tat trade battle that has unsettled stock markets in both countries. The expansion of index investing marks a new phase in China’s decades long effort to open up its markets to more foreign investment. China earned a spot in the benchmarks after regulators made progress at allaying concerns about market access and ease of trading.