The launch of two hybrid China fixed income indices by Bloomberg early this month has fuelled debate about the inclusion of Chinese securities generally in the broader index world. MSCI is again considering its position on China for its emerging markets equity index.
The two new Bloomberg Barclays indices are:
- Global Aggregate + China Index, which combines the Global Aggregate Index with the treasury and policy bank component of the China Aggregate Index, and
- EM (Emerging Market) Local Currency Government + China Index, which combines the EM Local Currency Government Index and treasury component of the China Aggregate Index.
The Bloomberg Barclays Indices have been the most widely-used for fixed income investors seeking objective, rules-based, and representative benchmarks to measure asset class risk and returns. Bloomberg Barclays Global Aggregate Index has been a central reference point for international fixed income investors.
Bloomberg is the first index provider to include China bonds in its global indices offering, according to the Financial Times. The decision to create the new hybrid China fixed income indices was due to the increasing accessibility to China’s bond market for international investors and based on Bloomberg’s ongoing global index review and governance process, including investor feedback from the company’s Index Advisory Council meetings in November 2016. RMB-denominated bonds are not currently eligible for inclusion in the Global Aggregate Index.
Norman Tweeboom, Singapore-based head of portfolio & index sales for Bloomberg, said this month that his firm’s role was to give clients choices. There was a clear effort within China to open up the market to foreign participants.
“But at the end of the day, an index is only as good as the community that uses it…. We have a role as a steward for the investment community.”
He said Bloomberg, which he joined with its acquisition of Barclays Risk Analytics & Solutions business last year, wanted to be a solutions provider for buy-side institutions.
“Data, analytics, order management and other capabilities allow us to provide holistic solutions for clients.”
For the past two years, in its annual reviews, MSCI has delayed introducing mainland China stocks to its emerging markets index because of remaining concerns about accessibility. It commenced its latest review last week.
According to the Wall Street Journal, MSCI sent an updated consultation document to fund managers last week. Rival index provider FTSE has introduced a “transition” emerging markets index which includes China A shares at the weighting equivalent of the small QFII and RQFII markets, which are largely becoming redundant because of Stock Connect.