MSCI votes ‘yes’ to include China A-shares

MSCI announced today their decision to include China A-shares in their Emerging Markets Index. Both China and MSCI have been very constructive, showing efforts on both sides to make this a reality.

Jun 20, 2017 | Invesco Asian Investment team

After four years of discussions, on June 20, 2017, MSCI announced a ”yes” decision on including China A-shares into the MSCI Emerging Markets Index, which tracks $1.6 trillion1 worth of assets around the world, and related indexes.2 The decision is seminal because it provides previously unavailable A-share exposure in emerging markets (EMs) and global indexes. The initial weight of China A-shares in the MSCI EM Index upon the August 2018 inclusion will be 0.73% (2.49% in the MSCI China index), comprising 222 onshore-listed stocks. The number of stocks is higher than the originally proposed 169 stocks in March’s consultation paper.

It is not a surprise to us. My team has expected that China A-share inclusion could realistically happen this year, as both China and MSCI have been very supportive of the change. We welcome this decision as it marks another milestone in recognition of China’s gradual market liberalization efforts, further opening its domestic equity market to global investors. What pleasantly surprised us is the MSCI announcement’s higher number of A-shares stocks to be added and the increased initial inclusion weight in EM index (from 0.48% to 0.73%) and MSCI China index (from 1.70% to 2.49%). In our view, the inclusion is a wake-up call for global investors to rethink their investment to China. It brings better representation of the entire Chinese economy and diversified exposure to the existing offshore Chinese equity universe.

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1 Sources: MSCI, eVestment, Morningstar and Bloomberg as of Dec. 31, 2016 (latest available data), released by MSCI on April 21, 2017.
2 Because the MSCI EM index is part of the MSCI All Country World index (ACWI), once A-shares are included in the EM index, they will also simultaneously be included in other regional and global MSCI indices, such as the MSCI Asia ex-Japan index.