The world’s most exciting stocks may now be in your funds

Stocks trading in mainland China have long offered one of market’s biggest thrill rides — they’ve roughly doubled in just one year, only to give it all back the next — and they’re moving into the mainstream of fund investing.

Last week marked the first time that MSCI, a company whose indexes set the benchmark for many mutual funds and ETFs, included Chinese stocks called

A shares in its widely followed Emerging Markets index. These stocks trade in Shanghai and Shenzhen and had been very difficult for outside investors to access, unlike shares traded in Hong Kong.

But mainland Chinese markets have been opening up in recent years, and MSCI added more than 200 A shares to its indexes, such as Hangzhou Hikvision, a video-surveillance company whose revenue has surged an average of 43 percent annually the last five years, and Kweichow Moutai, a premium liquor company.

The moves matter for all types of fund investors. Index funds that track the MSCI Emerging Markets index bought A shares so they can track the performance of the newly constituted index. The iShares MSCI Emerging Markets ETF, for example, is one of the most popular ways to invest in emerging-market stocks, and it now includes Hangzhou Hikvision and other A shares.

Actively managed emergingmarket funds aren’t required to buy A shares, but they will now have to compare their performance against the MSCI Emerging Markets index, which does have them.

Here’s a look at how A shares have performed and why they’re such a big deal:

How have these stocks done in the past?

They have a history of very big ups and downs.

In 2006, stocks in Shanghai more than doubled and then surged another 110 percent in 2007 in U.S. dollar terms. But they collapsed in 2008 amid the global financial crisis, plummeting nearly 63 percent.

One reason for the volatility is how dominated the market is by local retail investors. Unlike big institutional investors, who tend to dig into the financials of companies before deciding to buy, many of these retail investors piled into winning stocks on the simple expectation that they would keep winning. This helps lead to sharp booms and busts.

What risks are still there?

Even as institutional investors, such as mutual funds, increase their holdings of A shares, the retail-dominated market is still prone to big swings.

Plus, investors still see issues with corporate governance and how much influence the government has over the market. In 2015, when the A share market was tumbling in price, more than half the companies in the market had trading of their shares suspended.

“You’ve got something like 3,000 companies, and today we would think maybe 40 or 50 of them are investable,” Chuck Knudsen, emerging markets equity portfolio specialist at T. Rowe Price, said of the A share market.

Are things improving?

Yes, investors say. Companies are making more of an effort to engage with investors, particularly ones from outside China, for example.

“It’s just gradually improving over time,” said Andrew Mattock, portfolio manager at Matthews Asia. “You don’t wake up the next day, and everything is changed, but you see little things like companies’ investor relations having English as well as Mandarin materials.”