MSCI adjustments to increase capital inflows to A-shares

A-shares will attract an influx of investments after its inclusion factor in the MSCI Emerging Market Index rose from 2.5 percent to five percent, according to a report by the Shanghai Securities News on Tuesday.

Early Tuesday, the Morgan Stanley Capital International (MSCI) decided to raise the inclusion factor of the 226 A-shares in its Emerging Market Index, which were admitted on June 1, to five percent, and to add another 10 such shares into this index.

This adjustment, set to take effect after stock trading ends in China on August 31, will lift the weight of the A-shares in the MSCI Emerging Market Index by 0.02 percentage point to 0.75 percent, and is expected to attract more capital influxes into China.

As early as May, an estimate by Xie Zhengbin, research director of the MSCI Asia Pacific, calculated that a 5-percent inclusion factor might bring $22 billion of investments to China's stock market. Based on this amount, the 2.5 percent rise in the inclusion factor is expected to result in the inflow of another $11 billion.

For overseas investors, their top route to the A-share market is to go northbound via the two stock connect programs that link the H-share market to the two stock exchanges in Shanghai and Shenzhen.

Figures had revealed their huge interest in this regard before and after the A-shares' accession to the Emerging Market Index in June. In the second quarter, their net purchases climbed sharply, standing at RMB 38.6 billion, RMB 50.8 billion and RMB 28.49 billion respectively for the three months. Even amid the stock market ups and downs in July, their net buying remained almost the same as in June to generate a more than 30 percent year-on-year increase.

As of the end of Monday, northbound net capital inflow reached an aggregate of RMB 203 billion this year, higher than that for the whole year of 2017.

Cover image: Xinhua