MSCI ADDS 222 CHINA STOCKS

Beijing welcomes decision, saying it is sign of confidence in world’s No.2 economy

CHINA yesterday hailed the decision by index compiler MSCI to include it in its key emerging markets list, saying it was a signal of confidence in the world’s No. 2 economy.

The agreement to admit 222 mainland-listed big-cap stocks — allowing them to be traded by foreigners — comes after three failed attempts as China’s leaders aimed to expand its global market influence.

Analysts said inclusion on the Emerging Markets Index could lead to up to US$12 billion (RM51.47 billion) of inflows as many overseas investors measure the performance of their portfolios against MSCI indexes and are obliged to buy shares in them.

“We applaud and appreciate MSCI for making such a decision,” said Zhang Xiaojun, spokesman for the China Securities Regulatory Commission.

“It showed international investors’ confidence in a stable Chinese economy with better prospects and in the steadiness of China’s financial market.”

MSCI’s nod also comes after the domestic market was rocked by painful plunges in 2015 and last year, 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.

The benchmark Shanghai Composite Index closed up 0.52 per cent while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, finished 0.43 per cent higher — both bucking a downturn across the rest of Asia’s markets.

MSCI said the move had “broad support” from international institutional investors and was the result of loosening of restrictions enacted by China on foreign ownership of “A” shares — yuan-denominated stock in mainland China-based companies. Ownership of the shares had once been limited to mainlanders.

China has been gradually opening its A share market to foreigners, allowing them to trade selected stocks in Shanghai and Shenzhen through mechanisms linking those markets to Hong Kong.

Overseas investors have also been allowed to buy A shares through a quota system.

But for the most part they have been restricted to “B” shares denominated in US or Hong Kong dollars and traded in Shanghai and Shenzhen, or “H” shares traded in Hong Kong.

“International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion,” said MSCI managing director Remy Briand.

MSCI says its emerging markets index is tracked by more than US$1.5 trillion in assets, adding that Chinese representation in the index could be increased in time if it enacts additional reforms.

China had failed on three previous occasions to be included by MSCI, with the United Statesbased firm citing China’s restrictions on market access and on moving capital in and out of the country.

“We reflected the comments from the institutional investor community. They (Chinese officials) took them very seriously and acted upon some of them,” MSCI chief executive Henry Fernandez told CNBC. Reuters