MSCI is to add 204 more Chinese companies with A-shares listed on the mainland to its emerging market stock indices.
The proportion of China A-shares in MSCI indices will rise to 20% from 15% currently.
MSCI first included China A-shares in its key emerging market index in 2018 and the latest move, planned for November 26, follows two increases already this year.
HSBC has calculated that following the November addition, China A-shares will have a weight of 12.1% (up from 7.85%) in the MSCI China Index, and of 4.1% in the MSCI Emerging Markets Index.
More than 470 A-shares will be in the MSCI China Index as the 204 addtional names are added and HSBC Qianhai Research said it expects $5.5 billion of inflows as a result. These will come primarily via the northbound StockConnect scheme.
“From past expansions, we have seen that the process tends to be smooth and the inflow steady,” said Patrick Wong, head of China business development and client management at HSBC Securities Services.
Danny Dolan, managing director of China Post Global, said that greater participation from institutional investors globally with longer-term investment horizons than average, should help stabilise and reduce volatility in Chinese market, which has traditionally been retail-driven.
“There will be substantial further increases to the A-shares weights of all major global indices in the years ahead, but additional compromise by the Chinese authorities on foreign ownership will be required before long,” said Dolan, adding that the current 30% cumulative limit on foreign ownership of China-listed companies is “already causing challenges, with some companies already having their index weights reduced to ensure tradability”.
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