Foreign investors bet billions on China blue-chips joining MSCI index

The MSCI China Index has jumped 25% in 2017, helping propel Tencent Holdings and Alibaba Group into the ranks of the world's largest companies with market values of more than $330bn each.

"This represents 0.8 percent of A-shares' free-float market capitalization and 2.6 percent of its daily trading turnover", he added.

Even if the funds allocate 5% of their assets to Chinese A-shares, I would expect this US$41.8 billion would have a rather small impact, given the size of the Chinese onshore market-somewhere around US$7 trillion.

Arbitrary trading suspensions were better regulated, restrictions on qualified foreign institutional investors were further relaxed, while the Shenzhen-Hong Kong stock connect scheme was launched to broaden channels of foreign investment in the A-share market.

Ulrich stressed that the Chinese government has taken concrete steps to open up its equity markets to overseas investors after rolling out the Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect in 2016 as well as a bond connect program this year.

However, Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, said Friday that "the pace of China's reform" will not be affected by MSCI's decision.

Taiwan's stock market also hit a 17-year high but the main focus of the day was the potential landmark decision by global index provider MSCI on adding 169 mainland-China listed "A-shares" to its widely tracked emerging market benchmark.

Plans have been shelved three times to include China's A-share index in the EMI, which is compiled by Morgan Stanley Capital International, or MSCI.

Zhang has welcomed the prospects of the MSCI including A-shares in its benchmark index.

The MSCI Emerging Markets Index captures large- and midcap representation across 23 emerging market (EM) countries. However, signs of improved market liquidity supported the market on Monday. "Overall, it would be a positive development for the smooth functioning of the market".

It was changing hands at 12.9950 per dollar in morning trade, government bond yields were steady after hitting a three-week high and stocks were down 0.5 percent, having been boosted nearly 2 percent by Monday's rout in the rand.

Expectations of fewer new listings also supported the market.

"So far, this market is dominated by retail investors, who are influenced by short-term swings in sentiment as well as willing to overpay for growth levels that are not sustainable over an economic cycle", Ning added.

  • Zachary Reyes