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

China Gains Power to Impact Capital Flows in Asia after MSCI's Inclusion

Stocks benchmark provider MSCI Inc. said Wednesday it will add mainland Chinese shares on its emerging markets index - after three previous rejections - a big step toward validating China's efforts to gain credibility with global investors and open its capital markets overseas.

"Passive funds, index tracking is the future of global investing".

Global stocks retreated and the yen strengthened after oil tumbled into a bear market on concern a supply glut will persist. Stockholders of record on Thursday, June 22nd will be given a dividend of 0.5835 per share by the exchange traded fund on Monday, June 26th.

HSBC said after the actual rebalancing process in May and August 2018, China A shares may see foreign inflows of $500 billion in 5-10 years.

China's financial system took another step towards integration with the rest of the world this week - but not quite the way that was envisioned years ago.

Market analysts spoke highly of the MSCI decision.

Even if the increased number of stocks produces correspondingly larger flows, that will pale in comparison with China's roughly $7trn market capitalisation.

How will inclusion proceed from here?

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.

South Korea, Taiwan, and India could see the largest dilution in their stock weights in the MSCI Emerging Market Index (EM Index), translating into a combined US$4.2 billion worth of net selling by global investors, according to the latest projection by Goldman Sachs. On the flip side, a shorter MA like the 50-day may help with identifying shorter term trading signals.

Why a symbolic importance? The change took place following several years of monitoring closely China's reforms in the stock markets. Banks and insurance companies were the worst performers in Europe, while shares of Provident Financial declined 18% after a profit warning.

Why symbolism can still matter? Australia now has a weight in this index of 18.9% and all other things equal, this should fall to 18.8% after A-shares' inclusion, so there will be very little initial impact on demand for Aussie equities. In the near-term, retail investors, who dominate A-shares trading, could be buoyed by the decision.

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. The long-term implication could be more significant. This may seem to be only a small step for Chinese equities to attract new investors, but it is one giant leap for China's financial markets to be recognized globally.

"We reflected the comments from the institutional investor community".

China finally won a long campaign for inclusion in U.S. index provider MSCI Emerging Markets Index on Wednesday after having been rejected for three years running. Germany's DAX dropped 0.6 percent to 12,736.73.



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