MSCI president expects more Chinese A-share inclusion plans by year end


Beginning in 2014, foreign investors have been able to buy some Chinese-listed shares via so-called "stock connect" trading conduits linking Hong Kong's more open market with those in mainland China.

Like ZTE, China Railway Group Ltd (中國中鐵), whose H-shares are in the MSCI China Index, has been removed from the list, along with Beijing Orient Landscape & Environment Co (東方園林), China Hainan Rubber Industry Group Co (海南橡膠) and Shanxi Taigang Stainless Steel Co (太原鋼鐵).

In Hong Kong, the Hang Seng China Enterprises Index, which tracks mainland shares, bounced between negative and positive territory to end the day up 0.4 per cent. Hong Kong's blue-chip index was little changed.

"I believe it will bring enormous opportunities for global investors and also lead to the flourishing of China's capital market".

MSCI made the announcement past year.

"The A-share market is getting more and more aligned with the worldwide markets". News of MSCI's examination of Brazil, India, South Korea and Turkey comes as the index provider is preparing to add China A-shares to the MSCI Emerging Markets Index.

It is expected that, after two stages of inclusion (the second to take place in September), China A-shares will account for 0.78% of the MSCI Emerging Markets Index.

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As the first step of the inclusion, 234 Chinese A-shares will be added to the MSCI China Index and related global and regional composite indexes as of the close of May 31.

"However, more institutional investors may bring a rational mentality to the stock trading behaviour and worldwide standards of corporate governance", he said.

iShares MSCI Germany Index Fund (NYSEARCA:EWG) was the target of a significant growth in short interest in May. The Index consists of stocks traded primarily on the Mexican Stock Exchange. Royal Bank of Canada now owns 343,128 shares of the exchange traded fund's stock valued at $10,994,000 after acquiring an additional 100,056 shares during the period.

In a research report earlier this month, Credit Suisse analysts estimated an initial fund inflow of US$22 billion due to the inclusion.

"Index inclusion will bring more long-term institutional investors into the A-shares market.which will change the market structure", Shi said, noting that the market is now dominated by retail investors.

But the "relative ease and frequency" of share suspensions in the A-share market still remain a concern for foreign investors, he added.

Ross Teverson, a London-based fund manager at Jupiter Asset Management, expected the weighting of total Chinese equities in MSCI EM Index could eventually rise to above 40 per cent over time, with a higher inclusion factor.