US based stock index provider MSCI has allowed mainland China domestic shares to be registered on its emerging markets index.
China Shares Finally Get Listed On MSCI Index
Registration of Chinese shares on the MSCI is a significant move forward as Beijing attempts to makes its financial markets more open and to bring in foreign capital.
For the past three years, China’s attempts at being included on the US-based stock index had been rejected amid concern about accessibility for global investors and regulations.
The MSCI is the largest stock index provider in the world.
The 222 Chinese companies that will be included on the index will have their shares, also known as A-shares, included in the Emerging Markets part of the index. These shares will make up a mere 0.7% of the value of the index.
Currently, the MSCI Emerging Market Index is valued at about $1.6 trillion. As such, investment fund investors will need to have part of their investments in the selected Chinese companies.
The fact that China has been included in the stock index is an indication that there are fewer concerns over the way Chinese markets are regulated.
Jonathan Garner, chief strategist for emerging markets and Asia at Morgan Stanley said, “We look at this announcement as a crucial milestone in the integration of China’s equity markets with the rest of the world.”
Many Chinese companies are listed on more than one stock index i.e. they appear on both the Hong Kong and Shanghai markets.
Some Chinese companies are also listed on some foreign markets, for example ecommerce giant Alibaba, which is a US traded Chinese business.
Since late last year, it has been possible for foreign investors in Hong Kong to trade shares in about 900 companies listed on the Shenzhen Stock Exchange following the official opening of the trading link between Shenzhen and Hong Kong.
The launch of this link came after the Shanghai-Hong Kong Stock Connection was launched in November 2014. Following the launch of this earlier link, international investors could trade A-shares listed in Shanghai and stocks listed in Hong Kong as well.
China is home to the biggest stock market and the third biggest bond market in the world.
However, foreigners hold less than 2% of Chinese bonds and shares.
Through the Shenzhen and Shanghai trading links mentioned earlier, China has attempted to make its markets more accessible to foreign capital.
Rakesh Patel, HSBC’s head of equities in Asia Pacific said these trading links had been an essential part in China’s inclusion into the MSCI.