"We're a little concerned about the parabolic move we've seen in the A-Share market," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "But the H-Shares, which are Chinese-domiciled companies traded and listed in Hong Kong, are selling at a 25% discount to their A-Share counterparts, so there's much better valuation there."
He said Chinese stocks have been bid up due to anticipation that they would be included in the index, and also based on stimulus from the People's Bank of China, which is why he suggests being 'long, but cautious.'
Luschini said MSCI's decision was largely due to the immaturity of the Chinese market. "It's notorious that stocks listed in China are subject to a lot of retail buying and selling -- a lot of speculation, if not outright manipulation," he said.
The iShares MSCI Emerging Markets ETF has returned about 2% since the start of the year.
Stocks in China didn't react well to the news. The Shanghai Composite closed Wednesday's trading day at 5106.04, down 0.15%, after reaching an intraday high of 5162.79.
He said investors who have not yet made a commitment to investing in China should wait until the Chinese central bank's stimulus efforts have done more to improve economic conditions.
"We need to see the stimulus measures from the People's Bank of China actually start to work in the economy and right now there isn't clear evidence that's occurring," he said.