Chinese A Shares Win Inclusion on MSCI Emerging Markets Index


Following several years of consideration Chinese A shares have earned inclusion in the MSCI emerging markets index. 

MSCI announced on Tuesday that it intends to gradually introduce 22 China A Large Cap Stocks to its benchmark emerging markets index, beginning in 2018.

The decision comes in the fourth consecutive year that MSCI has mooted the addition of Chinese A-shares to its much-watched index, with many analysts forecasting a positive decision.

Financial stocks slated to join the MSCI index include Bank of China, China Merchants Bank, Guotai Junan and Ping An Insurance, as well as Tsingtao brewery, SAIC Motors and Spring Airlines amongst concerns in the real economy.

MSCI said that the decision was prompted by China’s further opening up of domestic financial market to foreign capital, as embodied by the launch of the Stock Connect program between Shanghai and Shenzhen.

“International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion,” said Remy Briand, MSCI Managing Director and Chairman of the MSCI Index Policy Committee in an official statement.

“The expansion of Stock Connect has been a game change for the market opening of China A shares.”

Speaking on CNBC’s Closing Bell, MSCI chairman and CEO Henry Fernandez pointed to the positive impact of “the reduction in the number of suspended stocks since the decline in the market…there’s less control and more availability in the shares,” as well as “the loosening of restrictions on the data in order to create index-linking investment vehicles.”

Given that the MSCI Emerging Markets Index is monitored by approximately $1.6 trillion in assets, the inclusion of mainland A-shares could give major impetus to the Chinese stock market, which is currently the world’s second largest.

Analysts note that the decision gives institutional investors greater confidence in the Chinese stock market, where foreign access has thus far been deterred by high levels of volatility and trading halts, in addition to official restrictions on the entry of overseas capital.