Money to follow MSCI into Chinese stock markets

Business & Technology

In June of last year, MSCI (formerly Morgan Stanley Capital International), a company that produces influential indices of shares that are traded on stock exchanges around the world, decided — after years of speculation — that it would finally include a few hundred mainland Chinese stocks into its listing.

Today, MSCI announced that June 1, 2018, is the official day that 234 of what are called “A shares” from China will be added to its lists, including the MSCI Emerging Markets Index, CNBC reports.

  • These 234 Chinese stocks will only be partially added, at a 2.5 percent inclusion factor in June, with plans for 5 percent inclusion on September 3, according to CGTN.
  • The partial inclusion means that even though the stocks of such giants as PetroChina, the Industrial and Commercial Bank of China, and China Construction Bank are listed, the Chinese portion will only constitute an “aggregate weight of 0.39 percent” of the Emerging Markets Index, CNBC says.
  • Nevertheless, MSCI is influential, and CNBC says that J.P. Morgan expects “$6.6 billion in passive inflows to likely migrate to MSCI China companies in the near term,” and “active flows…amounting up to $40 billion of flows into Chinese securities.”
  • Some analysts still object to Chinese stocks being included. Jacky Wong writes in the Wall Street Journal (paywall): “One of the reasons MSCI held back from admitting China-listed stocks to its indexes for years was companies’ penchant for suspending their shares from trading when hit by bad news. That problem hasn’t gone away.”
  • He points to ZTE, which “stopped trading in both its Hong Kong- and Shenzhen-listed stocks for a month, after the U.S. banned American firms from selling products to the company,” and China Railway Group, whose “Shanghai-listed shares have been suspended for nearly two weeks, pending an announcement on its plan to change some of its debt into equity.”
  • Despite potential disruptions, Bloomberg says (paywall) that the MSCI inclusion is “a stamp of financial credibility that will open China to more global investment,” and that its “embrace of China is expected, over time, to send billions of dollars flowing into the world’s second-biggest equity market.”