MSCI previously refused to include China A-shares exposure to its indices due to the restricted, illiquid and heavy government influence of its markets. China has shown a track record of suspending trade on stocks that suffered sudden share price declines, locking investors out during periods when they most want to trade. Additionally, China has restricted trading to investors with special licenses in order to buy and sell A-shares.
The indexer said it planned to eventually incorporate the entire A-shares market in its indices, which could cause China’s country weight to account for over 40% of the benchmark Emerging Market Index.
“This is a momentous move by MSCI,” Oliver Smith, portfolio manager at IG, told FT. “It is the start of what will probably end up being a very large Chinese representation in the Emerging Market and also the global index. China could end up being twice as large as the UK in the Global index due to its market cap.”
For more information on Chinese markets, visit our China category.