Chinese stocks gain wider world spread

CHINA won a measure of recognition from the world’s financial markets yesterday for its tireless efforts to upgrade and internationalise its financial markets.

Global equity index provider MSCI finally included a number of Shanghai and Shenzhen listed stocks in one of its most traded indexes, after a delay of three years.

The MSCI announced on Tuesday in the US (Wednesday in Beijing) that from June 2018, it will include some China A-shares in its EM (Emerging Markets) index and ACWI (All Country World Index).

MSCI plans to include 222 China A large-cap stocks, approximately 0.73 percent of the weight of the EM index at a 5-percent partial inclusion factor, in its calculations, according to its 2017 market classification review.

“MSCI inclusion is a major step toward the internationalisation of China’s stock market. It will have a far-reaching effect on the flow of global capital,” said Shi Donghui of the Shanghai Stock Exchange.

According to Shi, the combined market value of Chinese stocks is nearly $8 trillion(R104.14trln), about a tenth of the world’s total stock market capitalisation.

“The inclusion meets the needs of international investors and shows confidence in the Chinese economy and financial markets,” said Zhang Xiaojun, spokesperson for the China Securities Regulatory Commission.

Asia Securities Industry & Financial Markets Association also approved of the MSCI action, saying it was an important step in the internationalisation of China’s markets and improving the investment environment.

“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 the MSCI to proceed with the first step of the inclusion,” said Remy Briand, chairperson of the MSCI index policy committee.

“The expansion of Stock Connect has been a game changer for the market opening of China A shares,” said Briand.

MSCI first considered adding Chinese stocks to its indexes in 2014, since then China’s market has been through a steady stream of initiatives to make local exchanges more accessible to the outside world.

Trading links between Hong Kong, Shanghai and Shenzhen were significant steps, enabling foreign investors to buy A-shares with fewer restrictions than previous regimes. A connection of the mainland and Hong Kong bond markets is in the pipeline.

While the announcement of MSCI inclusion is important for China’s integration with the global financial system, it will have little initial effect on capital inflow, said Shanghai Stock Exchange’s Shi.