MSCI's plan for A-shares to draw billions in foreign capital to Chinese markets: experts
At least 70 billion U.S. dollars could flow into Chinese mainland stock markets following global index provider MSCI's latest decision to quadruple the inclusion factor of China A-shares to 20 percent, said experts from the U.S. leading investment bank Goldman Sachs.
"With the latest announcement, we estimate that at least 70 billion U.S. dollars could flow into China A-shares, with flows likely skewed toward the consumer and healthcare sector," said Kinger Lau, chief China strategist at Goldman Sachs, in an analytic note to investors on Monday.
MSCI announced on March 1 that the weight increase of China A-shares, or Chinese mainland shares denominated in yuan, in the MSCI indexes, would be carried out in three stages this year.
Upon the completion of the plan, there will be 253 large-cap and 168 mid-cap China A-shares, including 27 ChiNext shares, on a pro forma basis in the MSCI Emerging Markets Index, representing a weight of 3.3 percent in the pro forma index.
Lau believed that those flows of foreign capital would in turn further lift valuations for A-shares," which have already rallied this year."
Despite the "relatively small" makeup of the notional value of the A-shares in MSCI indexes, Christina Ma, head of Greater China Equities of Goldman Sachs Securities, acknowledged the significance of "the strategic and business impacts" of the move, as China "continues to open up its capital markets."
She pointed out that a number of regulatory reforms underway have been "broadening the scope of what foreign investors can invest in."
In that aspect, she mentioned China's new science and technology innovation board, which pilots a registration-based initial public offering system, saying it would facilitate companies focused on technology and innovation to list domestically.
"While it's still too early to see any material results, China is clearly moving toward opening up and broadening the scope of its capital markets," she said.
"Overall, these are all part of broader reform measures to improve investor sentiment, promote China's fast-growing new economy sectors and attract more institutional investors onshore," she added.