Emerging Markets

MSCI Widens Door For Mainland China Equities

Tom Burroughes Group Editor 27 September 2018

MSCI Widens Door For Mainland China Equities

The US-based index provider and analytics business is consulting on whether to raise weightings of Chinese A-Shares in its flagship indices.

Global markets index group MSCI is exploring whether to further increase the weightings of Chinese A-shares in its indices, a move that would draw more international capital into the country’s stock market.

So far, mainland Chinese equities – “A-shares” – comprise 5 per cent of the MSCI China Index and related composite indexes, such as the MSCI Emerging Markets Index. These benchmarks are used by asset allocators for private and institutional funds, such as pension plans. The inclusion of Chinese shares opened up the market to a wider investor base.

MSCI proposes to hike the inclusion factor of MSCI China A Large Cap securities from 5 per cent to 20 per cent of their respective free float‐adjusted market capitalizations. It aims to do this in two phases. It also proposes to add the ChiNext board of the Shenzhen Stock Exchange to the list of eligible stock exchange segments starting from the May 2019 semi‐annual index review. Thirdly, it suggests adding China A Mid Cap securities with a 20 per cent inclusion factor in one phase as part of the May 2020 semi‐annual index review.

“We welcome that initiative and we will support it. Since the positive decision made by MSCI 16 months ago, we finally have some clarification on the path forward and what to expect in terms of exposure to A-shares for global asset managers,” François Perrin, portfolio manager at East Capital, said. He added that the UK’s FTSE market indices business is expected to announce a similar move in coming days.

MSCI organisation intends to give its decision on or before 28 February next year.

When the US-based group initially made its China move, it added around 230 mainland traded big-caps to its benchmark Emerging Markets and All Country World Index indices. Analysts reckon that about $20 billion will initially flow into Chinese stocks. That amount could rise to $300 billion if there is full inclusion, as many market watchers expect. (Source: Reuters, 27 April, 2018.) MSCI first announced that it was including A-shares among indexes in June, 2017.

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