By Yin Lei
A total of 226 A-shares were officially included into the MSCI Emerging Market Index on Thursday after China’s stock market closed this day’s trading.
This admission, at a 2.5 percent partial inclusion factor, marked the first step of the A-shares’ entry into the MSCI Emerging Market Index. This entry gave A-shares a weight of 0.37 percent in this index.
With the second step of inclusion, to be completed on September 3, the inclusion factor will increase to five percent and A-shares’ weight will go up to 0.73 percent.
Compared with the list of 232 constitute stocks announced in mid-May, eight were dropped from the MSCI Emerging Market Index.
This reduction was due either to their suspended trading or the adjustments made under the two stock-connect programs between the A-share and H-share markets, explained Henry Fernandez, chairman and CEO of MSCI, in an exclusive interview with Shanghai Securities News on Thursday.
No ChiNext shares were included at present because MSCI’s focus was mostly on the main board. Restrictions on the trading of the ChiNext shares under the two stock-connect programs were another factor, according to Mr. Fernandez.
He said that any A-shares that clear the liquidity threshold and other relevant requirements could enter the MSCI’s indexes. For now, MSCI would not consider shares of companies with a weighted voting rights structure until it had finished its ongoing work to collect global opinions in this respect.
He said that in the process of admitting A-shares to the MSCI index, efforts would be made to avoid unnecessary market swings. The inclusion of A-shares would be phased in to mitigate market fluctuations, and market participants would be informed about the progress of the admission process.
Ahead of Thursday’s inclusion, market players at home and abroad were already making active preparations.
Domestic institutional investors started their preparations back in 2017 and have applied to set up thirty-eight related funds as of now. Six of these funds have completed their fundraising in April to collect a total of RMB 11.422 billion.
Major passive ETFs tracking the MSCI Emerging Market Index have already started investing.
For the past month, the A-share market was witnessing an influx of overseas capital.
On Thursday, it saw RMB 5.748 billion of net purchases by northbound investors, a record daily high that also pushed the net capital inflow in May to a monthly record high of RMB 50.85 billion.
Out of the RMB 50.85 billion, RMB 26.796 billion went to the Shanghai Stock Exchange and RMB 24.055 billion to the Shenzhen Stock Exchange.
MSCI constitute shares were the primary targets, with 36 of them seeing a total of RMB 20.528 billion in net purchases for the past month.
Following A-shares’ presence in the MSCI Emerging Market Index, more capital inflows will be entering China’s stock market, with RMB 100 billion expected in the short-term.
