MSCI decides to include China A-shares in its EM Index

While the index provider already offers exposure to A-shares via other sub-indices, the inclusion in an worldwide benchmark such as the MSCI EM index would be a precedent and would force funds around the world, that track the benchmark and its derivatives, to get exposure to Chinese domestically-listed stocks.

On Tuesday, MSCI, the company behind the leading stock market index for emerging markets, will announce whether it will include China A-shares in its index.

MSCI, which has been working directly with China's securities regulator to resolve hurdles to inclusion since at least 2015, helped bridge the gap between Beijing and reluctant global asset managers with a less ambitious proposal unveiled in March.

We are now into the third year of discussion and debate on the inclusion of China's domestic equity market to the major indices. MSCI's decision is expected Tuesday after the close of USA markets.

As a Chinese idiom says, "where water flows, a channel will form".

iShares MSCI Emerging Markets Indx (NYSE EEM) traded down 1.11% during trading on Tuesday, hitting $40.98.

For the country's stock market, while it still has a long way to go before matching the developed markets, its value of investment is undeniable as it provides the opportunity of trading the shares of some of the world's fastest-growing and most promising companies.

After a meeting on MSCI's acceptance of Chinese stocks, Jeong Eun-bo, vice chairman of the Financial Services Commission said the possibility of a swift outflow of foreign capital from South Korea is low, given the size of foreigners' net purchase of local stocks.

MSCI will start to calculate a number of MSCI Provisional Indexes as part of the MSCI ACWI Index Series that include China A shares.

When applying indicators for technical analysis, traders and investors might want to check out the ATR or Average True Range. The index provider delayed its decision on the status of Argentina's equities and will consult on the possible inclusion of Saudi Arabia in the index.

Shares of iShares MSCI Austria Investable Market Index Fund (EWO) have a 7-day moving average of 21.18. President Mauricio Macri lifted capital controls since taking office in December 2015, but MSCI wanted to wait. However, signs of improved market liquidity supported the market on Monday.

USA financial shares also gained as US debt yields rose after New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, said US inflation should rebound alongside wages as the labor market continues to improve. The number of restrictions on foreign companies operating in China's free trade zones was 190 in 2013. Many investors will choose to measure price performance of a specific stock to that of different market indexes as a whole.

"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.

Still, if MSCI again rejects inclusion, the impact on Chinese markets "could be rather limited", he said.

The company has been in discussions with Chinese regulators and global investors for almost four years on whether to add yuan-denominated shares listed in Shanghai and Shenzhen to the benchmark.

  • Zachary Reyes