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

The move will see around $17 billion to $18 billion of global assets move into Chinese stocks initially, MSCI executives told reporters, adding that over the long term the full inclusion of the China market could see more than $340 billion of foreign capital flow into the country.The magic number of 222 that MSCI has come up with comes from counting up every large-cap A-share accessible through Stock Connect, minus any that are excluded due to trading suspensions.The stocks, which would represent a weighting of just 0.73 percent in the benchmark, will be included via a two-phase process in May and August next year.Previously, MSCI had delayed the inclusion of the Chinese stocks because of certain investment restrictions.Saudi Arabia’s weighting in the MSCI index is expected to range between 2.5 and 3 per cent, a level that would be the highest for a Mena country.China A shares will not be included immediately in the indexes, hence immediate reaction in Shangahi was muted.The addition is widely regarded as a landmark moment in China’s road to opening up its vast domestic financial market to the world, boosting its credibility as a global economic power, and strengthening the worldwide status of its currency.China’s involvement in MSCI’s mainstream indices had previously been limited to Hong Kong-listed H-shares and Red chips. MSCI now serves 97 out of the top 100 asset managers, according to its official statistics.”The increase of institutional investors will change market structure and risk appetite, which will reduce market volatility to some extent”, Leung said.It’s a measured move that will build confidence in the global community and encourage even more cooperation from the Chinese. “In general, blue chips and large cap stocks in the A share markets with stable dividend policies are expected to outperform”.During the consultation, many institutional investors requested guidance on the future inclusion road map for China A shares.Factors to consider include a greater alignment of the China A shares market with worldwide market accessibility standards, the resilience of Stock Connect, the relaxation of daily trading limits, continued progress on trading suspensions, and further loosening of restrictions on the creation of index-linked investment vehicles, the firm said.Global equity indexes provider MSCI announced Tuesday that beginning in June 2018, it will include China A-shares in the MSCI Emerging Markets (EM) Index and the MSCI ACWI (All Country World Index) Index. MSCI will continue to monitor the situation and launch a public consultation to solicit feedback from investors once warranted.In news that’s sure to affect the iShares MSCI Saudi Arabia Capped ETF (NYSE: KSA), MSCI said it’s launching a consultation with clients on potentially including Saudi Arabian stocks in the MSCI Emerging Markets Index.The company is smartly holding out a carrot to the Chinese regulators: Do more to open up your markets, and we will include more of your stocks.What is the MSCI index, and why does it matter so much to China?It’s a big move: MSCI controls the indexes behind some of the biggest exchange-traded funds (ETFs) in the world, including the MSCI Emerging Markets ETF.In September 2016, the Saudi Arabian Capital Market Authority (CMA) implemented a new version of “Rules for Qualified Foreign Financial Institutions Investment in Listed Securities”.Still, some markets are already trying to find ways to limit the outflows and entice investors to remain.”In our view this is an endorsement of the positive Saudi Arabian stock market reforms”, said Emily Fletcher, director and portfolio manager at BlackRock in London.