MSCI inclusion to change the nature of A-shares

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02:44

Index giant MSCI has released its final list of 234 A-share stocks that will be included in its emerging markets index, which will lead to an increasing number of foreign investors allocating their money to China and awaken investors’ hopes of seeing the nature of A-shares changed.

The inclusion will take place in two stages, first by the end of May, and the rest by the end of August. Starting May 1, the Chinese government expanded the daily trading quota through the Shanghai-Hong Kong and Shenzhen-Hong Kong connections by four times.

The official action has tweaked the concern for the capacity and visibility of Chinese stock market opening up. “Increasing the daily quota limit is actually a very good sign that the government is very proactive and a good listener to the market participants,” said William Ma, CIO of Noah Holdings.

03:05

Listed companies connected to consumption and industrial upgrading will be high on the foreign investors' list. Daryl Guppy, CEO of Guppytraders said that thanks to the strong economic data and increasing consumer performance, investors have confidence in those sectors. But the key point of choosing a stock is whether the company can develop sustainably in the long term.

“For example, the domestic consumption growth story is a very powerful one, and it's a growth story. When global allocators invest in a market, we believe that we are looking for growth and not value. Second, the consumption sector is relatively less correlated to the global economy, so it's rather sticky and long term,” Ma added.

Besides, investors expect MSCI inclusion to begin changing the nature of China's stock markets.

“This is a very meaningful event. Before this, our stock market has been driven by individual retailers, which means they trade on speculation and concepts. In a mature market, investors value performance, liquidity and growth. More foreign investors coming in will definitely help change the investment style in the A-share market,” said Tan Jialong, Senior Analyst of Zendai Group.