The decision could be rather considered as a compromise as the weight of 222 China A Large Cap stocks in the MSCI Emerging Markets Index would be just 0.73 percent, much smaller than the market capitalisation in China would suggest.
But fresh worries about financials helped hit the brakes on the post-MSCI good feelings in Chinese stocks, sending them sliding in the last hour of trading. However, we think this is more likely to occur next year.
MSCI said that its decision to list Chinese shares had...
Since MSCI delayed the inclusion of China A-shares for the third time in 2016, Chinese authorities have taken several measures to ease worldwide investors' concerns over the A-share market's accessibility: arbitrary trading suspensions were better regulated, restrictions on qualified foreign institutional investors were further relaxed, while the Shenzhen-Hong Kong stock connect scheme was launched to broaden channels of foreign investment in the A-share market. They will be added via a two- phase process in May and August next year.
The MSCI inclusion "paves the way for global capital inflows into China's A-shares", rating agency Moody's said in a report on Wednesday, projecting roughly $11 billion in near-term fund inflows into mainland stocks from funds benchmarked to EMI.
Notably, domestic China shares are to be added at a mere 5% inclusion factor.
The potential inflows into China from bond inclusion are more significant, which we estimate could potentially be as much as USD100bn based on World Government Bond Index (WGBI) inclusion.
Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), told state broadcaster CCTV late on Wednesday that the regulator would implement reforms to internationalise the market, improve investors' access to the market, and encourage the development of products such as derivatives.
The MSCI decision has led to a rally in Chinese stocks with the CSI 300 Index, comprising the top 300 stocks on both the Shanghai and Shenzhen exchanges, gaining 1.2% to the highest level since December 2015.
The resilience of Stock Connect programs.
Secondly, only stocks which can be traded through the Stock Connect programme in Hong Kong are included.
However, China's weight in the MSCI EM will increase to 29.31 percent, from 27.99 percent, with potential passive inflows of 5 billion US dollars, of which 2.7 billion USA dollars inflows are expected to A-shares.
"It is the beginning of the full integration of Chinese mainland's financial market in the world", said Charles Li Xiaojia, chief executive of the Hong Kong Exchanges and Clearing, at the Shanghai Lujiazui Forum held on Wednesday. "All the problems that people complain about, including a lack of transparency and corporate governance, all create investment opportunities", said Qi Wang, a former MSCI executive director and now chief executive for asset manager MegaTrust Investments.