JPMorgan Sees inclusion of Chinese A-Shares in MSCI Index Attracting $40bn

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A senior executive from JPMorgan Asia Pacific expects the inclusion of Chinese A-shares in the benchmark MSCI Emerging Markets Index next month to attract as much as $40 billion to China’s stock markets.

MSCI, a US-based company that produces equity indexes, made the decision to include Chinese A-shares in its emerging markets benchmark in June last year following three successive years of failed application.

The move will see over 230 Chinese A-shares added to the Emerging Markets Index in two phases, eventually accounting for a 0.8% weighting in a benchmark tracked by $11 trillion of institutional funds around the world.

Jing Ulrich, vice chairman of JPMorgan Asia Pacific, said that international investors are already planning to expand their holdings of Chinese stocks in the lead up to the long-awaited move by MSCI.

Ulrich made the remarks on Monday at a press conference in Beijing just prior to JP Morgan’s 14th Global China Summit.

JPMorgan expects $6.6 billion in passive flows towards Chinese stocks as a result of their inclusion in the MSCI index, in addition to active flows that could be as much as five times greater.

Ulrich also expects other Chinese companies listed abroad to be added to the MSCI index, which will further increase their collective weighting.

According to Ulrich JPMorgan remains upbeat about Chinese A-shares, and expects the MSCI China average price-to-earnings ratio to reach 12.9% in 2018, which is 0.6 percentage points higher than the emerging markets average.

Chinese companies enjoy strong profitability, as evidenced by higher return-on-equity ratios compared to other emerging markets as well as some developed markets.

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