Inclusion of Chinese mainland stocks in emerging market index

Dhaka,  Tue,  19 September 2017
Published : 17 Jun 2017, 14:15:06
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Inclusion of Chinese mainland stocks in emerging market index

Inclusion of Chinese mainland stocks in emerging market index
China’s growing acceptance into international capital markets faces a watershed moment next week with a decision on whether a first batch of stocks listed on its $7tn domestic equity markets will be included into the world’s dominant emerging markets stock index, reports a global media Saturday.

If MSCI, an index provider, approves the inclusion of a cohort of Shanghai and Shenzhen-listed A-shares into its main emerging markets index, it will confer an unprecedented recognition upon China’s domestic capital markets and oblige funds all over the world to pour billions into the country’s stocks.

Although mainland-listed Chinese stocks and bonds have already been included in several investment sub-indices, they have yet to ascend into an international benchmark index. The distinction is crucial because fund managers judge their performance against benchmarks, so inclusion obliges them to buy the underlying securities.

Currently, China’s A-share markets and its $9.3tn domestic bond market - which rank as the world’s second and third largest, respectively - remain largely sequestered from international capital flows because governance problems dissuade index providers from including them in their benchmarks.

Opinion is divided, however, on whether MSCI will next week grant inclusion to A-shares. In each of the past three years, the company has debated inclusion among its clients only to reject it, citing market access obstacles and governance issues.

-SZ-
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