Leading US-based index to include Chinese stocks

SHANGHAI — China on Wednesday hailed the acceptance of its stocks in a leading US-based index of emerging market shares as a signal of confidence in the Asian power’s economy after three previous rejections.

The Shanghai and Shenzhen stock markets opened higher after New York’s MSCI agreed to include 222 large capitalization Chinese stocks in its MSCI Emerging Markets Index, representing 0.73% of the index.

MSCI’s decision has been closely watched as a sign of China’s growing importance on international financial markets.

“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,” Zhang said.

The benchmark Shanghai Composite Index jumped 0.29% while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, gained 0.24% in early trading.

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

“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 Remy Briand, MSCI managing director.

“MSCI is very hopeful that the momentum of positive change witnessed in China over the past years will continue to accelerate.”

‘TOKEN INCLUSION’

MSCI says its emerging markets index is tracked by more than $1.5 trillion in assets. The company said the Chinese representation in the index could be increased in time if China enacts additional reforms.

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. Prior to Tuesday’s decision, it had excluded Chinese shares for three years in a row.

“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.