MSCI tipped to add China A-shares to EM index

Posted June 21, 2017

"We believe MSCI's global investable market indices methodology is the most important document in asset management, as it influences how $10 trillion in both active and passive assets are invested", Brendan Ahern, KraneShares chief investment officer, said in a recent webinar.

LONDON, June 20 (Reuters) - Emerging market stocks took a breather on Tuesday after their best day in nearly two months, as investors waited to see whether MSCI would add the first batch of mainland China-listed shares to its $1.5 trillion EM index.

Listing Aramco in Riyadh would approximately double Saudi Arabia's weighting in the emerging markets index, fund managers estimate, possibly making the kingdom a bigger presence in the index than Russian Federation and Mexico.

Ken Wong, client portfolio manager at Eastspring Investments, said that the 5% inclusion would mean little in terms of fund flows into A shares, but positive for market sentiment and A-shares' standing. It will definitely now put Chinese companies on the map, these companies which were seen to be largely the domain of retail investors.

The removal of anti-competitive measures that restrict the introduction of products linked to China A-shares.

Australian shares will now face more competition for overseas interest following the decision by the MSCI index group to include some big Chinese stocks in its key emerging markets index.

Overseas holdings in Midea via the Shenzhen-Hong Kong Stock Connect doubled to 4.16 percent, from 1.94 percent three months ago, with about 230 million shares acquired by foreign investors during the period. The announcement comes on the heels of a series of market reforms that Tadawul and the Capital Market Authority (CMA) have undertaken as part of the Kingdom of Saudi Arabia's Vision 2030 economic transformation program, which in part seeks to bring the Saudi market into alignment with its emerging and developed market peers and gain recognition for the country as an indexed emerging market.

Raper explained the head of the China Securities Regulatory Commission was replaced and, even though 100 stocks remain suspended, more stringent rules have been applied to suspensions.

While the CSI300 has lagged a global stock rally so far this year, it had surged almost 8 percent since mid-May, partly on expectations of the MSCI decision. "Global investors are expected to monitor the China markets more closely from now on", Ma said.

MSCI first consulted global stock market practitioners in 2014 about whether the time has come for them to include A-shares in the MSCI EM Index. "Hence we think the market impact would be limited". Shenzhen is home to many Chinese internet, advanced technology and software start-ups.

Using Hong Kong as a linchpin, the Stock Connect scheme allows investors to trade approximately 1,480 yuan-denominated stocks onshore without needing to apply for a license and quota or being subject to capital mobility restrictions.

"We are very hopeful".

The index created to track and measure stock markets was rebalanced by Morgan Stanley on Thursday and new weightings take immediate effect.