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Increased flows

MSCI will increase the inclusion factor of all China A large-cap shares in its indexes from 5 per cent to 20 per cent by November. The index provider will also add China A mid-cap shares with a 20 per cent inclusion factor to the MSCI indexes, accelerating a move that was not expected to occur until 2020.

Once this is implemented, the MSCI Emerging Markets Index will include 253 large-cap and 168 mid-cap China A shares, representing a 3.3 per cent index weight, up from 0.7 per cent. We expect significant additional flows of capital to move into these stocks, as a natural result of being included in the benchmark.

China opens up

Chinese equities have recovered over the first two months of 2019, with investors expecting a positive outcome from the trade negotiations with the US. At the same time, the Chinese government has signalled its intention to support companies' access to funding to support domestic economic activity.

MSCI’s inclusion of Chinese shares is a key part of the process of the opening up of the country’s capital market, helping domestic companies attract a greater amount of global capital. It also highlights China’s growing significance in the global financial markets in line with its increasing centrality as a global economic power. As a result, we expect to see even greater levels of inclusion of Chinese securities in benchmark indexes in the future.

Catherine Yeung

Catherine Yeung