MSCI Emerging Markets Index takes in Chinese A shares

Jun 05, 2018
Move creates enormous opportunities for global investors

More Chinese A shares are set to be included in MSCI’s benchmark index, says company president Baer Pettit in a statement following the first phase of the process to include 230 large-cap Chinese stocks in the MSCI Emerging Markets Index last week.

On June 1, MSCI added the yuan-denominated Chinese stocks classed as A shares to its Emerging Markets Index. Pettit called the move a ‘small but important’ step that could trigger a rebalancing of global capital flows in coming years.

‘I believe it will bring enormous opportunities for global investors and also lead to the flourishing of China’s capital market,’ he says in the release. ‘The more international investors participate, the more they see [that investing in A shares] works and gain positive experience from it, the more they will invest.’

The MSCI China A Inclusion Index is heavily weighted toward financials, consumer and real estate. The firms are predominantly blue chips such as SAIC Motor and liquor maker Kweichow Moutai.

The original plan was to include 234 shares but, late on, MSCI revised the inclusion list, dropping telecom equipment and smartphone maker ZTE, which has been rocked by trade frictions between China and the US, and four other companies, whose shares have been suspended. Anhui Xinhua Media was added to the list.

The next inclusion phase will take place on September 3. There are around 3,500 listed Chinese A shares.

Previously, MSCI officials have said further inclusion of A shares would involve increasing the ‘inclusion factor’ and adding mid-cap stocks. Pettit says the next list of candidates for inclusion ‘will be made soon’.

He adds that MSCI will continue picking eligible A shares from the Stock Connect, the cross-border investment channel allowing overseas investors to directly access stocks listed on either the Shanghai or Shenzhen stock exchange.

‘We don’t know how many years [a full inclusion] could take. But it will be a multi-step process,’ says Pettit. Once MSCI sees what happens after the June inclusion, it will be more confident to make decisions, he adds.

The pace of future inclusion will depend on whether China will continue opening up its market and the ease of international investors to actually ‘put in and take out their capital’ from the market, Pettit concludes.

 

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