MSCI is expected to introduce a Chinese A-shares weighting to its Emerging Markets index this week following the latest review of the benchmark. The inclusion will be done in two steps: the first in May 2018 and the second in August of next year. Nigeria will remain a frontier market, awaiting further review. The ETF has market cap of $32.07 billion.
The South Korean share market could see outflows of up to 4.3 trillion won following MSCI's MSCI.N decision to add China's mainland-listed shares to its global indexes, a senior Korean government official said on Wednesday. In addition, there are concerns about whether China's volatile market will adapt to global best practices.
Since the decision not to include A-shares previous year, Chinese regulators have been working hard to improve foreign investors' accessibility as well as taking action to prevent dramatic market sell-offs, as witnessed in 2015.
"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.
The People's Bank of China injected a net liquidity of 110 billion yuan (US$16 billion) into the financial market through reverse repos yesterday.
Here is what you should know about MSCI, the inclusion, and why it's important to China.
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"The expansion of Stock Connect has been a game changer for the market opening of China A-shares", he said. "Tech stocks are getting a short-term boost from the Hong Kong proposal to set up a new exchange". The MSCI will consider 169 A-share stocks which could be potentially included in the MSCI indices, compared to 448 companies considered in 2016.
That initial small weighting is tipped to increase over time and Anderson, SSGA's head of investments, Asia-Pacific, says China A-shares are estimated to increase to as much as 15 per cent of the index from an initial 0.5 per cent.
The company's stock had a trading volume of 71,371,986 shares. Additionally, the decision on the potential removal of the MSCI Nigeria Index from the MSCI Frontier Markets Index has been delayed to November 2017 to allow more time for global institutional investors to better assess the effectiveness of the new FX trading window introduced by the Central Bank of Nigeria. A gauge of technology stocks climbed 1.2 percent as the region's best-performing group, rebounding from its steepest weekly slide since November 11. In defiance of Moody's surprise move, Chinese stocks even closed higher and shrugged off the fresh credit concerns.
MSCI decided not to add Argentina to the benchmark index and will consult on adding Saudi Arabia. President Mauricio Macri lifted capital controls since taking office in December 2015, but MSCI wanted to wait.
MSCI has in the past cited obstacles such as China's restrictions on market access and on moving capital in and out of the country. For example, there are new rules that limits under what circumstances and for how long Chinese companies can halt trading, a major issue past year when hundreds simply suspended trading during a drop in the market early in 2016. Prior to Tuesday's decision, it had excluded Chinese shares for three years in a row.
Until now, it's been an easy decision for global fund managers to avoid Chinese shares but it's now more of a bet if they decide not to invest.