US index provider MSCI has taken the historic step of adding some Chinese mainland-listed shares to its global benchmarks. The new coverage includes Chinese banks, manufacturers, and raw-materials firms. 

Moody’s Investors Service says that the MSCI’s decision is a positive for inflows into Chinese equity markets, and for passive funds and managers involved in cross-border products. The partial inclusion of A-shares will start with an approximate 0.73-percent weighting of these shares in the MSCI EM Index. That translates into about 11 billion US dollars of near-term fund inflows into China’s onshore markets. 

Moody’s says that the ongoing regulatory liberalization in the onshore market will lead to a full index inclusion of A-shares in the next few years. That’s with an estimated 20-percent weight within the index. 

Analysts say the move will expose foreign investors to sectors challenged by high debt and low growth and they believe the decision itself will boost capital flows into China’s stock markets.

“The inclusion is a vote of confidence by international investors as they are optimistic on China's growth outlook,” said Fu Hao, Director of Global Business Development in Shanghai Stock Exchange. “A shares have a market value of 8 trillion US dollars, making up approximately 10 percent of the global total, and more than 40 percent in emerging markets. The A-share market is also very liquid. International investors are highly motivated to invest in A shares to enjoy China's economic fruits.”

Liu Jinjin, Chief China Strategist at Goldman Sachs said, “We have noticed capital inflows to A shares via the Shanghai-Shenzhen stock program have amounted to 4 billion US dollars since May. I believe many international investors have already started to increase their positions in China’s A shares. And as a result, these active investors won't have to wait until next year when the inclusion officially takes effect.”