MSCI adds China-listed stocks to index in long awaited move

Robyn Ryan
June 21, 2017

The Exchange is the tenth largest stock market amongst its emerging market peers. The inclusion will be done in two steps: the first in May 2018 and the second in August of next year.

MSCI also said it would consult on adding Saudi Arabia to the benchmark, and that Nigeria would remain a frontier market, awaiting further review on a possible downgrade to "standalone" status. "Passive inflows into Saudi equities could draw approximately $9 billion".

The development punctuates an extraordinary period during which China has sought to enter the mainstream of worldwide finance while still maintaining a semblance of control over its markets.

Analysts nevertheless said China's admission to the index would be a good start. - Launch of a Real Estate Investment Trusts' (REITs) market to further broaden and diversify investment opportunities.

Seoul shares will shrug off an outflow of few trillion won, analysts said, as the total market capitalization of stocks listed on the benchmark main Korean Composite Stock Price Index (KOSPI) .KS11 reached 1,536 trillion won as of closing on June 20.

Chinese shares will go into a number of provisional indices before they are included in the flagship index starting in June 2018.

China's inclusion would help around $8 billion flow into its stock markets, Capital Economics said, describing it as "a token inclusion" given the weighting would be the equivalent of 0.1 percent of the domestic market's capitalisation. 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 worldwide institutional investors to better assess the effectiveness of the new FX trading window introduced by the Central Bank of Nigeria.

Oil prices returned to bear-market territory overnight and the us benchmark has fallen 20% from its last high point, with cuts by the Organization of the Petroleum Exporting Countries offset by increasing production elsewhere.

It is an important week for the Chinese stocks.

By late morning the blue-chip CSI300 index was up 0.6 percent at 3,568.74 points.

Tom Orlik, chief Asia economist for Bloomberg Intelligence, said in an interview with Xinhua on Tuesday that MSCI inclusion confirms and will accelerate the trajectory of China's capital market opening.

The stock of Ishares Msci Emerging Markets ET (NYSEARCA:EEM) registered an increase of 21.99% in short interest.

The MSCI Emerging Markets Index captures large- and midcap representation across 23 emerging market (EM) countries. The company had declined to add the shares for three years leading up to Tuesday's decision. MSCI has highlighted the potential for disruptions to offering existing financial products based on the MSCI EM Index if a Chinese exchange denies approval of MSCI's licensing of that index. Restrictions on currency trading in 2015 prompted the review. Investors will also be watching the next wave of economic data to get a better sense of how the overall economy is fairing. Not only is the market massive - the second-biggest worldwide after America's - it's also home to numerous companies most aligned with China's consumer and service industries, which are seen as key drivers of the $11 trillion economy's long-term expansion.

First, the measures taken by the Chinese authorities should allay investors' concerns around quotas, suspensions, and the ability to manage a fund tracking an index which includes A-shares.

While the CSI300 has lagged a global stock rally so far this year, it had surged almost 8 percent since mid-May, partly on expectations of the MSCI decision.

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