Global stock index compiler MSCI Inc is to increase the weighting of Chinese-listed firms in a key benchmark and nearly double the number of those included, a move expected to boost acceptance of China’s often volatile equities markets and attract billions in investment.
The US-based company, which last year added 236 China-listed large-cap stocks to its Emerging Markets Index for the first time, late on Thursday said in a statement that it would quadruple those shares’ weighting in three stages by November.
It would also add 168 new mid-caps in November, plus 27 stocks from the technology-heavy ChiNext board.
MSCI inclusion is expected to spur big foreign investment inflows as institutional funds buy shares of the China-listed companies — known as “A-shares” — to match their portfolios to MSCI.
The Shanghai Composite Index yesterday rose 0.78 percent by late morning trade following the news. China’s second exchange in Shenzhen gained 0.51 percent.
MSCI resisted adding A-shares for years due to concern over Chinese corporate governance, Beijing’s meddling in markets, restricted foreign access to stocks and their high volatility.
However, it last year said that the equities had become “too big to ignore.”
China has also taken a number of steps to modernize and open up its financial markets, which MSCI cited as key factors in the latest decision.
“The strong commitment by Chinese regulators to continue to improve market accessibility ... is another critical factor that has won the support of international institutional investors,” MSCI managing director Remy Briand said.
A-shares now account for just 0.71 percent of the Emerging Markets Index, but that is to increase to 3.3 percent by November, MSCI said.
However, firms related to China but not traded there already make up more than 30 percent of the index, due to the inclusion years ago of heavyweights like Wall Street-listed Alibaba Group Holding Ltd (阿里巴巴) and Baidu Inc (百度), as well as Hong Kong-listed Tencent Holdings Ltd (騰訊).
Chinese stocks tanked last year, but have rebounded about 18 percent this year as trade war fears subside and the government has rolled out a series of market-supporting policies.
Great Wall Securities Ltd (長城證券) strategy analyst Bao Ting (包婷) said that MSCI’s latest decision could lure an additional US$70 billion in foreign funds into A-shares.
“Attractive Chinese stock valuations and looser monetary policies will lure more foreign capital,” she said.
Fund management company T. Rowe Price Group Inc welcomed MSCI’s decision, saying that it increases the internationalization of Chinese markets and could benefit corporate governance.
“This should be a good incentive for local companies to increase the transparency of their reporting practices and to adopt strategies that more firmly consider shareholders’ interest,” said Eric Moffett, manager of T. Rowe Price’s Asia Opportunities Fund.
“We are very excited about the opportunity set in this market and its growing relevance to investors outside of Asia,” he said.
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