For four years MSCI has talked with Chinese regulators about including Chinese “A-shares” in its Emerging Markets index. Until now the restrictions on access to Chinese markets have prevented MSCI from including the shares. But yesterday MSCI announced that it would include Chinese shares in the Emerging Markets index, with a selection of 222 large cap stocks making the cut. Reuters reports:
The bulk of the shares will be financial and industrial companies, many state-owned. According to Credit Suisse, among the 222 stocks on the simulated list of constituents for the new proposal of China A-share inclusion, 50 are in the financial sector with a total weight of 36 percent, and 44 stocks are in the industrial sector with a total weight of 16 percent.
The stocks, which would represent a weighting of just 0.73 percent in the benchmark, will be included via a two-phase process in May and August next year.
The move will see around $17 billion to $18 billion of global assets move into Chinese stocks initially, MSCI executives told reporters, adding that over the long term the full inclusion of the China market could see more than $340 billion of foreign capital flow into the country.
Sebastien Lieblich, global head of index management research at MSCI declined, however, to provide a likely timeline for the full inclusion of “A” shares, saying it would depend on continued progress on China’s reform agenda.
MSCI, he noted, would like to see China further relax controls on repatriating capital out of the country, and act to curb frequent share suspensions.
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Jeremy Jones, CFA
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