China Stocks Market: MSCI's global indexes increases weighting of A-shares to 10%
Updated 21:40, 17-May-2019
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03:11
The weighting of Chinese A-shares in MSCI's global indexes will be increased later this month. More than 200 stocks are currently part of the MSCI Emerging Markets Index, and the total amount of market capitalisation of those stocks will grow to 10 percent from May 28th. MSCI announced the details of the increased inclusion factor Tuesday. Joel Flynn has more from Hong Kong.
This was, some said, a game changer. Tens of billions of dollars flowed into Chinese stocks after MSCI included them on its emerging markets indexes. In June last year, 238 large cap firms were initially brought in. Now the next step is underway. From May 28, those A-shares will have their weighting in MSCI indexes increased from 5 percent to 10 percent. That could potentially help draw in more than $80 billion in additional foreign inflows.
ANDREW COLLIER, MANAGING DIRECTOR ORIENT CAPITAL RESEARCH "Long term this could be beneficial because it will suddenly get a lot of very experienced money managers now having a voice in China's domestic economy, which is positive."
MSCI's indexes are closely watched and trusted. Its EM index has funds with assets under management in excess of $1.6 trillion benchmarked to it. That means that when Chinese shares are added to the index, money that follows the benchmark will have to buy them to avoid deviation. That will mean more foreign investors holding Chinese stocks, which could be a change from current trading patterns.
ANDREW FRERIS CEO, ECOGNOSIS ADVISORY "Even now with the through train between Hong Kong and Shanghai, the performance has been kind of - it went up, it went down, it went up again, and then it went down again. In other words, I can't tell you there has been a huge flow from us to them."
Some have suggested these foreign inflows will help China modernise. MSCI's Managing Director Remy Briand said in February that regulatory moves by Beijing were winning the support of international institutional investors. The A-share weighting could ultimately be increased even further. But there are still concerns about market risks in China.
ANDREW COLLIER, MANAGING DIRECTOR ORIENT CAPITAL RESEARCH "The problem is that because it's a closed economy because it does not have a deep bond market and the currency is not tradable, therefore they're limited in what they can do. So they probably are, I think, for the most part, are dipping their toes in the water."
MSCI will also add large-cap shares on the tech-focused ChiNext board. It will then further increase the weighting to 15 percent in August and 20 percent in November.
JOEL FLYNN HONG KONG "There are still big concerns about the impact of the Chinese slowdown and the uncertainty from the trade war. But for many investors across the globe, this increased weighting could also be an increase in opportunities. JOEL FLYNN, CGTN, Hong Kong."