USD$300bn in Foreign Capital Headed for Chinese A-shares: MSCI Chief


The head of MSCI says that the inclusion of Chinese A-shares in its emerging market index could be expedited by regulator’s dialling back cross-border transaction curbs, thus helping to spur a sizeable influx of overseas capital into China’s stock market.

Speaking to China Securities Journal Henry Fernandez, MSCI chairman and CEO, said that index provider had engaged in communications with the China Securities Regulatory Commission and the State Administration of Foreign Exchange about lifting or fully rescinding cross-border trading curbs, in order to make it easier for overseas investors to enter the A-share market.

According to Fernandez the authorities have given “positive consideration” to the proposition, which could facilitate the inclusion of Chinese shares in MSCI’s emerging markets index, and spur the expansion of foreign capital into China’s stock market.

MSCI estimates that the total value of funds tracking its indices has reached USD$11 trillion, with USD$2 trillion following the emerging market index. The company estimates the inclusion of Chinese A-shares in the index to draw over USD$300 billion in overseas capital into China’s stock market.

Fernandez pointed out that the daily restrictions of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes meant that the scheduled inclusion of 222 Chinese A-shares in the MSCI Emerging Markets Index would involve a two step process.

In May 2018 a 2.5% weighting would be incorporated into the formulation of the mid-year index, while a further 2.5% weighting would be added in August at the time of the formulation of the quarterly index.

Fernandez said that the incorporation of Chinese A-shares in MSCI’s emerging market index could still be performed in a single step if Chinese regulators would permanently lift daily cross-border trading restrictions, or even cancel them completely, in order to better cater to the interest of foreign investors.

“The main factor determining a division into two steps is the restriction on daily transaction amounts,”  said Xie Zhengbin, MSCI Asia Research Director, to China Securities Daily.

“From the perspective of international investor, the division into two steps means twice as much time…if they could choose, international investors would of course prefer to complete it in a single step.

“From the perspective of Chinese capital markets and the securities regulator, they of course do not want delays to inclusion.”

While MSCI might be willing to expedite the Chinese share inclusion, Xie said that there would neither an increasing or reduction in its weighing on the index because of the significant inconvenience this would cause for investors.