MSCI adds China-listed stocks to index in long awaited move

MSCI adds China-listed stocks to index in long awaited move

This aspect is highly in disfavour of the A-shares' candidacy for an worldwide benchmark, as the inclusion of Chinese stocks would mean that many funds would have to invest in these stocks to track the global benchmarks and they should be guaranteed that their funds would not be stuck in the Chinese system at times of market anxiety.

FTSE Russell launched in 2015 two transitional indexes that include China "A" shares, allowing clients keen to allocate funds to domestic Chinese stocks to do so at their own pace.

The changes to the index will take effect from June 2018.

USA index provider MSCI said on Tuesday it will add mainland Chinese stocks to one of its key benchmarks, but shocked many emerging market investors by failing to upgrade Argentina from the frontier market category where it has languished in recent years. It included Saudi Arabia on its watch list for potential classification as an emerging market. BlackRock, the world's biggest asset manager, has backed inclusion of domestic Chinese shares this year.

China's securities regulator said on Friday that it hopes MSCI can open its index to China shares, but if not, Chinese capital market reform will not be derailed. "Approval would offer a nice boost to China's capital levels". As of May 31, the index had a total aggregate market capitalization of more than $4 trillion and 830 constituent stocks.

ETFs tracking China stock indices saw 14.5 million euro ($16.17 million) of outflows on Friday, reversing a trend of steady inflows seen since the beginning of this month, according to independent ETF selection platform TrackInsight.

Wall Street had been watching with interest for the decision, since dozens of funds - including $32 billion iShares Emerging Markets (EEM) - track or are benchmarked to MSCI Emerging Markets Index.

Global stock benchmark provider MSCI has made a long-awaited decision to add mainland Chi.

MSCI changed its tactics slightly this year, by focusing on stocks accessible via the Stock Connect, which has a very low barrier to entry and guarantees that an investor seeking A-share exposure will be able to obtain access without needing onshore trading accounts or gaining special licences from the Chinese authorities.

Speaking to InvestorDaily ahead of the decision, UBS Asset Management head of investment strategy Tracey McNaughton said MSCI adjusted its criteria to make China's inclusion easier at the fourth attempt. "The second category is something that we're very focused on, we'd like to expand the universe of shares that are available to global investors".

Widely tracked MSCI's full inclusion of A share could pull significant amount of funds to China's equity market over the next decade, said analysts, and brings about more competition and opportunities. "If in the next few years the degree of opening up increases. then it could go from one to 10 or even 100", Zhang said.

The newly introduced Investors' and Exporters' (I&E) foreign exchange window targeted at foreign portfolio investors could earn Nigeria reprieve from being demoted from the MSCI's frontier markets index.

The MSCI decision will add 222 China A-share stocks starting in May 2018. Chinese government frequently employed trader-unfriendly measures such as trading suspensions and restrictions on the sell-side to cool down the market pressures on times of global sell-off.

MSCI is expected to introduce a Chinese A-shares weighting to its Emerging Markets index this week following the latest review of the benchmark.

USA crude futures stood at $44.28 per barrel, about a half cent above its five-month low of $43.76 set on May 5.

Nick Beecroft, Asian equity portfolio specialist at T. Rowe Price, says the initial impact on global indices will be "extremely modest", but could have bigger implications long term.

For many investors, China's local shares represent the future.



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