MSCI to boost weight of China shares in indices

Mar 12, 2019
Weighting to increase to 20 percent in three-stage process

Indices provider MSCI is to increase the weight of China A shares in the MSCI Indexes from 5 percent to 20 percent in a three-step process.

The decision follows a wide-ranging consultation with a large number of international institutional investors, with the proposal gaining overwhelming support.

Remy Briand, MSCI managing director and chairman of the MSCI Index Policy Committee, says in a statement: ‘Stock Connect [the collaboration between the Hong Kong, Shanghai and Shenzhen stock exchanges] has proven to be a robust channel to access A shares.

‘The successful implementation of the initial 5 percent inclusion of China A shares has been a positive experience for international institutional investors and has fostered their appetite to further increase their exposure to the mainland China equity market.

‘The strong commitment by the Chinese regulators to continue to improve market accessibility, evidenced by, among other things, the significant reduction in trading suspensions in recent months, is another critical factor that has won the support of international institutional investors.’

The feedback gathered during the consultation indicates that international institutional investors prefer to see the weight of the China A large-cap shares increased in three steps to alleviate potential execution pressure on the implementation dates.

In addition, a significant proportion of investors highlight that China A mid-cap shares should be included in the MSCI Indexes jointly with the weight increase in large-cap shares to allow for a smoother implementation.

Therefore, MSCI will increase the weight of China A shares according to the following schedule:

Step 1: MSCI will increase the index inclusion factor of all China A large-cap shares in the MSCI Indexes from 5 percent to 10 percent and add ChiNext large-cap shares with a 10 percent inclusion factor coinciding with the May 2019 Semi-Annual Index Review.

Step 2: MSCI will increase the inclusion factor of all China A large-cap shares in the MSCI Indexes from 10 percent to 15 percent coinciding with the August 2019 Quarterly Index Review.

Step 3: MSCI will increase the inclusion factor of all China A large-cap shares in the MSCI Indexes from 15 percent to 20 percent and add China A mid-cap shares, including eligible ChiNext shares, with a 20 percent inclusion factor coinciding with the November 2019 Semi-Annual Index Review.

On completion of this three-step implementation, there will be 253 large and 168 mid-cap China A shares, including 27 ChiNext shares, in the MSCI Emerging Markets Index, representing a weight of 3.3 percent.

As part of the consultation, institutional investors also stress that a future weight increase of China A shares in the MSCI Indexes beyond 20 percent would require Chinese authorities to address a number of remaining market accessibility questions. 

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