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Sino File | MSCI inclusion points China’s stock market in right direction

The MSCI Emerging Markets Index has admitted China into its global-investment club, but its membership comes with many stipulations

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Investors stand at trading terminals in front of electronic stock boards at a securities brokerage in Shanghai. Photo: Bloomberg.
Though it could be viewed as too little too late, the decision by index compiler Morgan Stanley Capital International (MSCI) to add Chinese stocks to its benchmark index still matters to the world’s second-largest economy and the investment community globally.

The inclusion of domestically traded, yuan-denominated stocks, or the so-called A-shares listed on the Shanghai and Shenzhen stock exchanges, is another milestone towards China gaining full acceptance in the global economy.

It follows the International Monetary Fund’s decision last year to include the yuan in its basket of currencies that make up the Special Drawing Right, making the Chinese currency the fifth global reserve asset.

It is a welcome vote of confidence as China aims to make reforms that are amenable to international investors after three years of delays.

An investor uses a smartphone displaying share prices at a securities brokerage in Shanghai. Photo: Bloomberg
An investor uses a smartphone displaying share prices at a securities brokerage in Shanghai. Photo: Bloomberg

However, China’s 222 large-cap stocks that will be included in the MSCI Emerging Markets Index in May 2018 will account for only 0.73 per cent of the index. They will also be included in the MSCI All Country World Index (ACWI) with a 0.1 per cent weighting, and MSCI Asia ex-Japan Index with a 0.83 per cent weighting.

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