The weighting of Chinese stocks in MSCI indexes is set to surge in the months ahead.
MSCI Inc. announced plans to increase the weight of China A shares in the MSCI indexes, following a global consultation that found “overwhelming support” from investors.
“The successful implementation of the initial 5% inclusion of China A shares has been a positive experience for international institutional investors and has fostered their appetite to increase further their exposure to the mainland China equity market,” said Remy Briand, managing director at MSCI and chairman of the MSCI index policy committee.
MSCI also points to the efforts of Chinese policymakers as a reason for the support from global investors.
“The strong commitment by the Chinese regulators to continue to improve market accessibility, evidenced by, among other things, the significant reduction in trading suspensions in recent months, is another critical factor that has won the support of international institutional investors,” Briand said.
MSCI says that it will increase the weighting for China A stocks by increasing the inclusion factor to 20% from 5% in three steps, starting in May. The change will be fully phased in by November.
Investor support for any further increases will require Chinese authorities to take action on a number of remaining market access issues, including restrictions on hedging and derivatives and concerns about the short settlement cycle of China A shares, among other concerns, the firm says.