China A-shares added to MSCI indices for first time

China A-shares added to MSCI indices for first time”

SHANGHAI, June 21 Chinese stocks gave only a lukewarm reception on Wednesday to an move by index provider MSCI to add some mainland Chinese stocks to one of its key benchmarks, with traders saying a "Yes" decision had already been largely priced in.

MSCI changed its tactics slightly this year, by focusing on stocks accessible via the Stock Connect, which has a very low barrier to entry and guarantees that an investor seeking A-share exposure will be able to obtain access without needing onshore trading accounts or gaining special licences from the Chinese authorities.

A decision by USA -based index provider Morgan Stanley Capital International (MSCI) to include China's domestic stocks is expected to have a limited impact on South Korean shares, analysts here said Wednesday. "In general, blue chips and large cap stocks in the A share markets with stable dividend policies are expected to outperform".

According to the company, a two-step inclusion process will be used.

The index provider delayed decisions on the future classification of Argentina and Nigeria.

Before making the decision, MSCI conducted an extensive consultation that included a large number of asset owners, asset managers, brokers and other market participants. Moutai surpassed Diageo in April when its market value reached US$71.5 billion.

"The decision of the MSCI to include China A-shares into the MSCI EMI has been long awaited by all market participants", director of legal and tax affairs at ALFI, Marc-Andre Bechet, said.

MSCI's nod also comes after the domestic market was rocked by painful plunges in 2015 and 2016, and a liquidity crisis fuelled by Beijing's recent efforts to tighten credit over concerns the country's massive debt could trigger a financial meltdown.

MSCI's indexes are closely followed by fund managers and the move could draw more foreign investment to Chinese firms, though analysts said they didn't expect an immediate flood of money because the two-phase implementation is still a year away.

The benchmark Shanghai Composite Index jumped 0.29 percent while the Shenzhen Composite Index, which tracks stocks on China's second exchange, gained 0.24 percent in early trading. But experts warned that the inclusion in MSCI's global benchmark equity market will have limited impact on the Chinese stock market. Your traditional A-share is a company incorporated in mainland China, with shares listed on the exchanges in either Shanghai or Shenzhen. "China's weighting in current indices under represents its impact on the global economy".

"In addition to capital inflows, the style of overseas investment institutions will help traders improve their trading strategies, which will make the A-share market more standardized and internationalized", said Hao Hong, chief China strategist at Bank of Communications International Holdings Co.

But they said it could still take as long as a decade for MSCI to include Chinese shares at the country's full weighting, citing ongoing uncertainty over the pace of reform, the risk of regulatory shifts and weak corporate governance.

"This decision has broad support from global institutional investors with whom MSCI consulted, primarily as a result of the positive impact on the accessibility of the China A market", MSCI said in a statement.

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