Stock index provider MSCI announced that it will increase the weight of China A-Shares in the MSCI Emerging Markets Index in three steps from May to November this year. On completion of this three-step implementation, there will be 253 Large and 168 Mid Cap China A shares(including 27 ChiNext shares) on a pro forma basis in the MSCI Emerging Markets Index, representing a weight of 3.3% in the pro forma index.
MSCI’s press release says, “The strong commitment by the Chinese regulators to continue to improve market accessibility, evidenced by, among other things, the significant reduction in trading suspensions in recent months, is another critical factor that has won the support of international institutional investors.”
UBS estimates that the amount of funds flowing into China in 2019 related to MSCI and FTSE Russell will reach approximately $12.5 billion. Citi estimates that if the A-share inclusion factor is raised to 100% by 2025, the weight of Chinese stocks in the MSCI Emerging Markets Index will rise to 40% (see Figure 1).
Figure 1: Pro-forma weight of China A-shares in MSCI Emerging Markets Index
Source: MSCI, Citi Research