MSCI Finally Approves Inclusion of China A-Shares in its Emerging Markets Index

After three years of rejection, the MSCI finally approved the inclusion of China A-Shares in its Emerging Markets Index. However, China’s stocks were little moved by the announcement. The Shanghai Composite Index rose 0.3 percent at 10:21 a.m. local time, after earlier falling as much as 0.2 percent.

Inclusion in MSCI could spur about $17 billion of inflows into Chinese shares, the index compiler said. However, the landmark step will initially have a small effect on the amount of foreign money entering the nation’s $6.9 trillion stock market. Bloomberg reports that domestic shares will comprise just 0.7 percent of MSCI’s global emerging-markets gauge.

The MSCI hinted that it’s open to a bigger role for A shares if China further liberalizes its markets, reports Bloomberg. Henry Fernandez, MSCI’s chief executive officer, said in a Bloomberg Television interview that potential next steps include a bigger so-called inclusion factor, which would increase the weighting of Chinese shares in the index, and the addition of mid-cap stocks.

The China Securities Regulatory Commission said on Wednesday that it welcomed MSCI’s decision and will improve its rules to meet the needs of foreign investors.

Inclusion will be done in two steps: the first in May 2018 and the second in August of next year. 

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