China A-Shares Inclusion in MSCI

On 20 June 2017, MSCI announced that beginning in June 2018, China A shares will be included in its EM and ACWI indices. The journey of China A share inclusion by MSCI started in June 2013 when China A shares were put on the 2014 market classification review list.  Since then, on a yearly basis, MSCI conducted consultations with their international institutional clients for an inclusion.   The current outcome is the result of its 4th consultation with board support from MSCI’s clients. MSCI stated that this decision was the result of positive impact on accessibility of the China A share market and loosening by local Chinese Stock Exchanges of pre-approved requirements that can restrict the creation of index-linked investment vehicles globally. This inclusion, a 2 step process in May and August 2018, will add 222 China A Large Cap stocks representing, on a pro-forma basis approximately 0.73% of the weight of the MSCI EM index at a 5% partial inclusion factor. Miller Guo, CEO of GF International Asset Management opined: “The MSCI decision has significantly expanded the investment opportunity set for international investors by including China A Shares, the second largest equity market in the world. The diverse range of listed companies on the China A shares markets offer great potential for investors to participate in China’s large and fast-growing economy. As a leading Chinese asset manager GF International is very excited about this opportunity.” According to Goldman Sachs, this widely anticipated move could trigger an inflow of as much as $200 billion into China’s equities over the next 5 years.  Nonetheless, the immediate impact on the Chinese stock market from portfolio rebalancing following MSCI announcement is likely to be muted, according to Capital Economics. This development has significant positive implications to FundRock’s clients and Danny Dolan, Managing Director, of China Post Global has been quoted in a number of publications with his comments: “This is a significant and highly symbolic recognition of China’s importance to the global economy, and a big vote of confidence in the Chinese growth story from MSCI and its clients. It is worth noting that this is by no means the end of the road for China, the government has already indicated it intends to continue its ambitious program of market reforms and internationalisation, and this latest development is only likely to increase the pace of new initiatives.” FundRock’s services to our clients include coverage of Stock Connect and RQFII programs. For further information on investing in China, please contact Christina Coustry at Christina.Coustry@FundRock.com