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Want in on China’s A-shares? The devil is in the details

Investors, even at the best of times, have a habit of running after bright shiny objects and latching on just like a fish to some lure. However in a sideways market, where everyone is chasing after any little nibble of growth, this natural inclination towards hype is amplified.

It\’s easier than ever to invest in Chinese stocks. Here\’s how to get the most value


China’s mainland stock market has been red hot over the past year and could get another big lift soon. But Chinese H-shares traded in Hong Kong could be the best long-run bet

This habit usually appears when it comes to initial public offerings (IPOs), where opening-day enthusiasm soon gives method to the sober light of losses, and it is usually retail investors who wind up paying simply because they get in the sport too late.

This week, the standard thing appeared as if it might happen half a global away, as expectation grew that MSCI Inc. C the earth\’s largest indexer C might finally include China A-shares in the Emerging Markets Index.

The speculation ended up being something of the non-story, because MSCI ultimately decided to hold off for now. But it left the doorway open to include A-shares – stocks in mainland China companies, traded on mainland exchanges for example Shanghai and Shenzhen – within the influential index, that is tracked by greater than a trillion dollars\’ worth of funds around the globe.

The impact on China and other international markets could be huge. By some estimates, foreign inflows into Chinese markets because of full inclusion could total US$330 billion.

If, or rather when, it takes place, this theoretical liquidity pump could further inflate the super-hot mainland exchanges. The Shanghai and Shenzhen indexes\’ one-year returns are 156% and 189%, respectively.

It may also displace billions of dollars from other emerging markets for example India and Korea. It is no surprise, then, that Shanghai was up and India was down as speculation within the potential inclusion ramped up the 2009 week.

Should you care? Well, no. And yes.

With the affected Chinese indexes on the tear, who wouldn\’t would like to get a piece of that action? Full inclusion would offer at least a brief boost to waning emerging-market funds that track the MSCI. Lord knows they might use some help.

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