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 capitalization of those stocks will grow to ten percent from May 28th.
An industry insider said it is a game changer. Tens of billions of dollars flowed into Chinese stocks after MSCI included them on its emerging markets indexes. Since June last year, 238 large cap firms were initially brought in. Those A-shares will have their weighting in MSCI indexes increased from five percent to 10 percent this May 28. That could potentially help draw in more than 80 billion U.S. dollar in additional foreign inflows.
"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," said Andrew Collier, managing director of Orient Capital Research.
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MSCI's indexes are closely watched and trusted. Its EM index has funds with assets under management in excess of 1.6 trillion U.S. dollar benchmarked to it. That will mean more foreign investors holding Chinese stocks, which could be a change from current trading patterns.
"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," said Andrew Freris, CEO of Ecognosis Advisory.
Some have suggested that these foreign inflows will help China modernize. 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, while there are still concerns about market risks in China. Collier cited the country does not have a deep bond market as well the currency is nor tradeable. That means most of the investors are limited their actions.
Meanwhile, 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.
Though there are still big concerns about the impact of the Chinese slowdown and the uncertainty from the trade war. The increased weighting could also be an increase in opportunities for many investors across the globe.