Markets· Equity

MSCI index adding China’s A-shares in Aug, USD 22.7 bln foreign funds expected

minutes 2019/08/09 03:21:21
MSCI, A-shares, China-US trade war

Aug 09, 2019 (China Knowledge) - Global index compiler MSCI has confirmed the increase in the weighting of China's large-cap A-shares in its global benchmarks is due to bring into effect in August. The inclusion factor of more than 200 large-cap A-shares will be raised from 10% to 15% as part of MSCI's quarterly index review.

It is expected that the A-share market's weighting in the MSCI Emerging Markets Index will be lifted from the current 1.76% to more than 2.1%. According to the China International Capital's estimation, the weighting increase in August may usher in USD 22.7 bln worth of foreign capital inflow into China's A-share market.

The MSCI China A Inclusion Index is designed to track the progressive partial inclusion of A-shares in the MSCI Emerging Markets Index over time. Currently, the Index includes the large-cap A-shares. When the further inclusion of A-shares to the regional index completes, the newly eligible A-shares will be added. The Index will be able to reflect those A-shares compatible with Hong Kong Stock Connect and based on the offshore RMB exchange rate.

MSCI's plan to increase A-shares' weighting in its benchmarks is divided into three steps.  According to MSCI, the index provider started to partially include China large-cap A-shares in the MSCI Emerging Markets Index on May 31, 2018. Under the current partial inclusion plan, China A-shares will weight 5% this year. In the event of full inclusion, China equities would exceed 40% of the MSCI Emerging Market Index.

The chief strategist with Shenzhen-based China Merchants Securities Zhang Xia estimates that USD 3.6 billion worth of passively-managed overseas funds tracking the index will flow into the A-share market during trading on Aug 27. 

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