Foreign investors bet billions on China blue-chips joining MSCI index

Foreign investors bet billions on China blue-chips joining MSCI index

Foreign investors bet billions on China blue-chips joining MSCI index

Although some issues remain, there is a growing consensus among market participants that the inclusion of Chinese onshore shares (A-shares) in MSCI indices is increasingly a matter if "when" rather than "if".

"The probability of the inclusion of A-shares in MSCI has increased this year, although initial weighting will likely be small", Ulrich said.

Nicholas Yeo, Aberdeen's head of Chinese and Hong Kong equities, said: "Mainland China's entry should be a formality since MSCI eased its own admission criteria". Trillions more of investor dollars are tied to additional MSCI global indexes.

Malaysia became the only down market in Asia today, after foreign investors turned net sellers in the country last week, putting an end to an 18-week buying streak.

MSCI has rejected A shares repeatedly on concerns over accessibility for worldwide investors, restrictions on repatriation of capital, and licensing restrictions imposed by Chinese authorities for A-share index products in overseas markets.

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However, since MSCI has narrowed the universe of stock picks to 169 from 448 previously and chose to only include initially 5 per cent of the free-float market cap, the expected capital inflow to China will be small.

Total turnover of stocks in the two indices shrank by 3.4 percent to 351 billion yuan (51.6 billion USA dollars) from the previous trading day.

"It looks like a mere drop in the bucket", Li said.

If a deal is finally hammered out, A-shares would account for just 0.5 percent of the MSCI Emerging Markets Index.

The views expressed are the views of the author, not necessarily those of Thomson Reuters.

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However, actual implementation would not take place until June 2018. "In the case of a "No" decision: The A-share market might first react with a minor decline of 1.0 per cent", Morgan Stanley said in a recent report.

"Collectively for global passive AUM (assets under management) that track MSCI indices, the A-share inclusion would add only US$1 billion to US$1.5 billion of passive fund inflows, a very small fraction of total A-share market cap and trading volumes", they said.

China's fourth attempt at cracking into MSCI Inc.'s benchmark share indexes comes with its best chance of success - and the least at stake.

As far as MSCI is concerned, they have just completed a recent round of global consultations with worldwide investors and will announce the results on 20 June.

On the other side, a few investment institutions hold more conservative views on the probability of MSCI's acceptance. Previous efforts have foundered on concern over repatriation limits and excessive trading suspensions, obstacles the index compiler has sought to overcome with a less ambitious proposal.

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"The inclusion could bring about 60.7 billion yuan into the (A-share) market, but the impact would be limited if the inclusion does not happen", Haitong Securities wrote.

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