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May 16, 2018

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MSCI to include 234 A-shares in leading indices

CHINA’S top liquor maker Kweichow Moutai Co and the Industrial and Commercial Bank of China and Bank of China will be among 234 Chinese A-shares that will be included in MSCI’s main indices, the New York-based company said yesterday.

Their shares will be added to MSCI's global and regional indices, including the benchmark MSCI Emerging Markets Index, from June 1.

These stocks will represent an aggregate weight of 0.39 percent in the MSCI Emerging Markets Index when included in June.

MSCI, the world’s top stock-index compiler, unveiled on Monday the final list of Chinese shares that will be included in its benchmarks at the close of May 31.

That means investors will need to buy yuan-denominated stocks for the first time if they want to closely track the benchmark gauges, opening China’s huge equity landscape — with its big swings and unique idiosyncrasies — to the pension and mutual funds that track MSCI’s gauges.

The list consists mostly of bluechip stocks, with the majority of companies in the financial, consumer and medical sectors, including Kweichow Moutai Co, ICBC, BOC and China Construction Bank, and brokerages like Guosen Securities.

The inclusion will help China’s financial market open wider to the world, with inflows of foreign investment expected, analysts said.

“The inclusion of A-shares in the MSCI indices is likely to increase the participation of foreign institutional investors,” said Ma Lei, portfolio manager at Fidelity International.

“In the medium to long term, this will help make the A-share market more sophisticated and raise its market liquidity. Also, the market will become increasingly driven by fundamentals instead of short-term market factors,” he added.

“As the A-share market has a free-float market capitalization of US$3.4 trillion and a daily average transaction volume of US$75 billion, the inflow brought by the inclusion will not have a major impact in the short term,” said Gao Ting, a UBS Securities analyst.

On June 20, 2017, MSCI first announced the partial inclusion of A-shares in the MSCI China Index, the MSCI Emerging Markets Index and the MSCI ACWI Index.

China has improved market access for global asset managers, enabling foreign investors to buy shares on the Shenzhen stock exchange, MSCI said, after rejecting for three years China’s previous application for inclusion.

Foreign investors have already started increasing their holdings of Chinese stocks ahead of the inclusion.

Data showed that overseas investors have been adding positions of A-shares via the stock connect programs, with net inflows of funds from Hong Kong to the Shanghai and Shenzhen stock exchanges reaching 38.7 billion yuan (US$6.1 billion) in April.

“This showed the growing appeal of the A-share market to foreign investors,” Gao said. “The MSCI inclusion will boost market sentiment.”

China recently announced a series of opening-up measures, including increasing the daily quotas for the mainland-Hong Kong stock connect programs and letting foreign brokers hold a majority stake in securities joint ventures.


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