China’s A-Shares Break Into Global Big Leagues With Inclusion in MSCI Indexes

20/6 2017 11:15

MSCI said on Wednesday it will add domestic Chinese equities to its global emerging markets benchmark index.

After three straight years of Failed Attempts, China's domestically-traded A-shares finally cracked into MSCI Inc.'s global indexes, a Move That the US index compiler estimates Could the lure of up to $ 18 billion of fresh funds to the Chinese market "to start with . "

Analysts believe the inclusion might at best give Chinese equities a near-term, moderate boost. Any significant inflows to the A-shares, however, will hinge more on the nation's economic growth and financial reform prospects, they say.

China's securities regulator applauded MSCI's decision.

Chinese stocks edged higher Wednesday. The Shanghai Composite Index opened 12:29% higher at 3148.99, while the Shenzhen Component Index was up 12:38% at 10327.13.

MSCI said early Wednesday Beijing Time That it would add 222 A-share companies to its Emerging Markets Index and All Country World Index, beginning in June 2018. A-shares' weighting in the indices will be 0.73%, it added.

Earlier this year, the index compiler to proposed to include only 169 A-share companies with a 0.5% Index weighting. MSCI said the final list to include the Expand A-share That companies are dual-Listed as H shares in Hong Kong.

A shares are yuan-denominated equities traded on Shanghai and Shenzhen stock exchanges. H-shares are Chinese companies traded in Hong Kong dollars on the Hong Kong bourse. Large companies such as ICBC are dual-Listed as the A and H shares.

"International investors have embraced the positive changes in the accessibility of the China A-share market over the last few years and now all the conditions are set for the MSCI to proceed with the first step of the inclusion," Remy Briand, the MSCI managing director and chairman of the MSCI Index Policy Committee, said in a press release.

"The expansion of stock Connect has been a game changer for the market opening of China A-shares," he said.

China Launched The Stock Connect program offering mutual access for investors between the Hong Kong Stock Exchange and the Shanghai bourse in 2014. In December lastyear, another trading link connecting Hong Kong and Shenzhen was added.

MSCI said this year's decision is a translation of a result of the loosening by the local Chinese stock exchanges of preapproval requirements That can restrict the creation of index-linked investment vehicles globally.

During a conference call with journalists Wednesday, MSCI That it May added in the future include up to 450 A-share companies in its benchmarks. That will translate into $ 30 billion- $ 35 billion fresh funds for China's equities market, it said.

MSCI vetoed A-share inclusion over the past three Annual Reviews, citing limited market access for global investors, capital controls and the opaque regulatory framework.

"The MSCI inclusion is small, but slightly higher than expected," said Hong Hao, Chief China Strategist at Bocom International Holdings Co.

"China's Efforts on re-regulating stock-trading suspension, the expansion of the Connect Scheme, the relaxation of new-product preapproval, as well as support from the international investment community have worked. Initial market reaction Should be positive, especially for the larger caps, "Hong said.

MSCI had approximately $ 11 trillion of Both active and passive assets benchmarked against it as of the end of 2016, including Thousands of asset managers, pension funds and hedge funds, with emerging markets alone accounting for $ 1.6 trillion.