Global stock index compiler MSCI will 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 firm, which last year added 236 China-listed large-cap stocks to its Emerging Markets Index for the first time, said in an announcement late Thursday it would quadruple those shares' weighting in three stages by November.
It will also add 168 new mid-caps in November, plus 27 stocks from the tech-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 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. But it said last year the equities had become "too big to ignore". China has also taken a number of steps to modernise 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," said Remy Briand, MSCI's managing director. A-shares now account for just 0.71 percent of the Emerging Markets Index but that will increase to 3.3 percent by November, MSCI said.
Firms related to China but not traded there already make up more than 30 percent of the index, however, due to the inclusion years ago of heavyweights like Wall Street-listed Alibaba and Baidu, and Hong Kong-listed Tencent.
'Very excited'
Chinese stocks tanked in 2018 but have rebound around 18 percent this year as trade-war fears subside and the government has rolled out a series of market-supporting policies. Bao Ting, a strategy analyst with Great Wall Securities, said MSCI's latest decision could lure an additional $70 billion in foreign funds into A-shares.
"Attractive Chinese stock valuations and looser monetary policies will lure more foreign capital," she said. China has long shielded its markets but in recent years has widened foreign access to increase its global financial footprint. It also plans to launch a Nasdaq-style tech board in Shanghai to deter big Chinese start-ups from listing abroad.
Shares included by MSCI last year included heavyweights such as Kweichow Moutai, the world's largest distiller, automaker SAIC, and consumer appliance giant Midea. Fund management company T. Rowe Price welcomed MSCI's decision, saying it increases the internationalisation 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."
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