Global stock benchmark provider MSCI Inc has made a long-awaited decision to add China-listed shares to its widely followed stock indices.
MSCI on Tuesday said that it is including yuan-denominated A-shares of 222 large cap Chinese companies to the MSCI Emerging Markets Index.
The stocks are to be added in a two-step process starting in May next year and are to represent 0.7 percent of the index.
MSCI’s indices are closely followed by fund managers and the move could draw more foreign investment to Chinese firms, although analysts said they did not expect an immediate flood of money because the two-phase implementation is still one year away.
In three previous index reviews, the benchmarker has held off on adding Chinese shares because of worries about limited access for foreign investors to the country’s markets. Another turnoff was volatile trading, including a market meltdown in 2015 that led at one point to about half of stocks being suspended.
To address those concerns, MSCI is only adding shares available through two cross-border trading links that have opened up since 2014 between Hong Kong’s stock market and the exchanges in Shanghai and Shenzhen.
These “Stock Connect” links give foreign investors wider access to the mainland’s markets, which are mostly restricted to local investors.
Stocks suspended from trading for more than 50 days are excluded, MSCI said.
“International investors have embraced the positive changes in the accessibility of the China A-shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion,” MSCI managing director Remy Briand said in a statement. “The expansion of Stock Connect has been a game change for the market opening of China A-shares.”
More China-listed shares could be added if the country loosens restrictions further, MSCI said.
The company’s global stock indices are the basis for exchange-traded funds and used by professional investors to track their performance.
The Emerging Markets Index covers 830 companies in 23 nations, with Chinese companies traded overseas already accounting for the biggest share at 28 percent through Hong Kong-listed stocks such as PetroChina Co (中國石油天然氣) and New York-traded shares like Alibaba Group Holdings Ltd (阿里巴巴).
The Chinese securities regulator welcomed the decision and indicated its markets would open wider to foreign investors, but gave no details or time frame.
“We are happy to see it,” China Securities Regulatory Commission (CRSC) spokesman Zhang Xiaojun (張曉軍) said in a statement.
The change is “both an opportunity and a challenge,” said Zhang, adding that the CSRC would help develop more ways for foreigners to invest in A-shares, but giving no details.
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