MSCI Inc. will include China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index beginning in June 2018.
This announcement made Tuesday afternoon has broad support from international institutional investors with whom MSCI consulted, primarily as a result of the positive impact on the accessibility of the China A market of both the Stock Connect program and the loosening by the local Chinese stock exchanges of pre-approval requirements that can restrict the creation of index-linked investment vehicles globally.
Consequently, MSCI plans to add 222 China A Large Cap stocks, representing on a pro forma basis approximately 0.73% of the weight of the MSCI Emerging Markets Index at a 5% partial Inclusion Factor.
“International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion.” said Remy Briand, MSCI Managing Director and Chairman of the MSCI Index Policy Committee. “The expansion of Stock Connect has been a game changer for the market opening of ChinaA shares.”
A two-step inclusion process will be used to account for the existing daily trading limits on Stock Connect. The first inclusion step would coincide with the May 2018 Semi-Annual Index Review followed by the second step which would take place as part of the August 2018 Quarterly Index review. MSCI reserves the right to revise the planned implementation to a single phase should the daily limit on Stock
Connect be abolished or significantly expanded before the scheduled inclusion dates.
MSCI will start to calculate a number of MSCI Provisional Indexes as part of the MSCI ACWI Index Series that include China A shares. These indexes serve to manage the implementation of the inclusion of China A shares in investors’ portfolios on the schedule of their choosing.