MSCI increases A-share proportion in its indexes
Further inclusion cannot drag mainland stocks out of bearish mood: expert
Leading international index provider MSCI announced on Monday that it would increase the weights of A-share constituents in its indexes, which experts said still cannot drag the mainland stock market out of a bearish mood.
An additional 2.5 percent of the market capitalization of A shares will be included in the MSCI Emerging Markets Index, according to a statement published on the official MSCI website.
“This shows that the A-share market is systematically pushing forward its internationalization scale, but MSCI inclusion can’t drag A shares out of its current bearish market because of the limited scale of expected inflowing overseas capital,” Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Tuesday.
The mainland stock markets have been driving on Tuesday. The Shanghai Composite Index had slipped by 0.18 percent to 2,780.96 points, while the Shenzhen Component Index edged down by 0.68 percent to 8,784.90 points.
A shares have been sliding hard in recent weeks. The Shanghai index reached about 3,044 points two months ago on June 14.
The MSCI has also announced it would add 10 new A shares into the MSCI China Index, bringing the total number of A shares included to 236.
The Shanghai Security News said on Tuesday that a 5 percent inclusion of A shares in the MSCI indexes would bring about $22 billion in capital.
“Most of the incremental capital would be from passive funds that automatically track shares included in international indexes like MSCI,” Dong said. “For active funds [that choose stocks by their own standard], indexes are just references and they should have already entered the mainland market via stock link programs if they wanted to,” he said.
“For overseas investors, what they fear most is policy uncertainty in the A-share market,” Dong said.
He also stressed that the inflowing overseas capital is still limited in scale compared with overall liquidity in the A-share market. “The A-share market has its own fluctuation cycle that can’t be swayed by overseas capital,” he noted.