The MSCI logo Photo: VCG

 
Global index provider MSCI's move to increase weighting of Chinese A-shares among equity indexes indicates foreign capital anticipation on the stock market and huge growth potential following the latest round of opening-up measures, industry analysts said Tuesday.

MSCI raised the inclusion factor for all large-cap China A-shares in its equity indexes from 15 to 20 percent, and added mid-cap China A-shares to its MSCI indexes with a 20 percent inclusion factor that will go into effect following Tuesday's market close.

Upon completion, there will be 244 large-cap and 228 mid-cap China A-shares, representing a weight of 12.1 percent and 4.1 percent in the MSCI China and MSCI Emerging Markets Indexes, respectively.

The move followed MSCI's March announcement that it would increase Chinese onshore A shares within its market index by raising the inclusion factor from 5 to 20 percent with a three-step plan in May, August, and November.

Sebastien Lieblich, managing director and global head of equity solutions at MSCI,said Tuesday that with this final step in increasing Chinese A-shares weight in MSCI's equity indexes, so far there hasn't been any issues with international investors.

Lieblich said a timetable for the next phase inclusion has not been established. 

"There is much uncertainty about when MSCI will take further steps to increase the inclusion, but the trend is inevitable and unstoppable," said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management.

"With more foreign capital flowing into the A-share market, the idea of value investment will become mainstream," Yang noted.

UBS Securities China Equity Strategy team estimated that Tuesday's rise could bring a potential net passive inflow of $5.8 billion into the A-share market.

"Pending MSCI's decision, we anticipate the inclusion factor to rise 30 to 40 percent in the next few years, until it reaches 100 percent. Our calculation points to an A-share weighting of 16.6 percent in MSCI Emerging Markets if the inclusion factor reaches 100 percent," said UBS.

Li Daxiao, chief economist with Shenzhen-based Yingda Securities, told the Global Times Tuesday it is likely the index provider will accelerate raising A shares' inclusion next year based on the success of this year's three-step action plan.

"MSCI needs to maintain its advantages in racing with other index providers," said Li.

Apart from MSCI, major global benchmarks FTSE Russell and the S&P Dow Jones Indices have strengthened the weighting of China's A shares or included the A-shares into their indices.

In October, MSCI took China's science and technology innovation board into consideration, providing further eligibility assessment before November's semi-annual index review.

This year, China introduced new measures aimed at increasing financial market reform and opening up to attract international investors.

In September, China's State Administration of Foreign Exchange announced it would remove the caps on two cross-border investment programs, Qualified Foreign Financial Institutional Investor (QFII) and its yuan-denominated sibling RQFII, making it more convenient for overseas investors to participate in the domestic financial market.

The Chinese mainland equity market has attracted more than 240 billion yuan ($34 billion) in overseas capital since the beginning of 2019, indicating strong global investor confidence, said Li Chao, vice chairman of the China Securities Regulatory Commission.