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Macro· Equity

China's A-shares officially added to MSCI major indexes

CKN
minutes 2018/06/01 08:36:52
2,950
MSCI,A-share,Shanghai-Hong Kong Stock Connect

Jun 01, 2018 (China Knowledge) - Global index provider MSCI officially adds 226 China's large cap domestic stocks to its major emerging market indexes today, a move expected to attract billions of dollars into China's stock market.

The June 1 inclusion with its 2.5% partial inclusion factor is part of a two-step process, with the second phase of inclusion being in September 3rd. With the addition of only a small slice of selected stocks market capitalization, A-shares will initially represent about 0.39% of the weighting on the MSCI Emerging Markets Index. The addition of the next 2.5% to the index will raise China's weighting in overall index to 31.31%. The total China weightings in MSCI EM index before A-shares inclusion and after 2.5% partial inclusion is 30.10% and 31.04% respectively.

The inclusion means ETF, international retirement plans and endowment funds looking to track the indexes will need to buy yuan-denominated stocks for the first time in order to avoid tracking errors. MSCI estimates that about USD 22 bln in fund flows to China A-shares via passive and active funds.

Meanwhile, net purchase of mainland-traded stocks via its stock conect program reached RMB 6.63 bln yesterday, a day before the A-share inclusion. This is more than doubled the average daily buying of RMB 2.72 bln in May. Shanghai and Shenzhen stock connect with Hong Kong attracted a net capital inflow of USD 50.9 bln in May, the highest level of net inflow of funds in a single month since the launch of the Stock Connect.

The Shanghai-Hong Kong Stock Connect attracted a net inflow of RMB 26.796 bln while the Shenzhen-Hong Kong Stock Connect attracted a net inflow of RMB 24.055 bln in May. China's securities regulator earlier quadrupled the daily quotas, effective 1st May, for its two stock connect schemes ahead of China's MSCI inclusion back then. Daily southbound quotas raised from RMB 10.5 bln to RMB 42 bln while the daily northbound quotas under the Shanghai and Shenzhen stock connect schemes rose from RMB 13 bln to RMB 52 bln.

The opening up of the world's second largest equity market to global investors is widely regarded to be a major step towards deeper integration of China's bourses with the rest of world.

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