Macroscope | China’s A-shares inclusion to MSCI global equity index looks almost certain
The MSCI looks likely to admit China’s domestic shares into its global equity indexes during it annual review on June 20
It is that time of the year again, when MSCI is due to decide whether to include China’s A-shares into its global equity indices.
For the fourth consecutive year, the global equity benchmark provider has proposed to discuss the inclusion of A-shares in its benchmarks at the annual review. The decision is pending on June 20, and if a positive verdict is delivered, the implementation should start a year later.
After three failed attempts since 2014, we think China stands a good chance of joining the MSCI this year.
Factors supporting the inclusion are obvious. A-shares are the second-largest equity market in the world by market cap and turnover. In fact, combining the mainland- and Hong Kong-listed equities, China is already the most actively traded market in cash turnover.
However, A-shares, akin to yuan bonds, are completely unrepresented in major global indices like the MSCI. Even though Hong Kong- and foreign-listed Chinese stocks are included, the weights are usually well below the relative size of China in the global economy and equity market.
From a timing perspective, 2015 was a roller coaster year in the A-share market while 2016 featured intensive investor concerns about the Chinese economy. Both years were less than ideal for foreign investors in China.