[Exclusive] MSCI to Disclose in May Which A-Share Firms Are Bound for Emerging Markets Index

[Exclusive] MSCI to Disclose in May Which A-Share Firms Are Bound for Emerging Markets Index

Zhou Ailin

Date: Thu, 04/12/2018 - 14:00 / source:Yicai
[Exclusive] MSCI to Disclose in May Which A-Share Firms Are Bound for Emerging Markets Index
[Exclusive] MSCI to Disclose in May Which A-Share Firms Are Bound for Emerging Markets Index

(Yicai Global) April 12 -- Stock market index provider MSCI Inc. will next month reveal which China-listed companies will be included in its benchmark for the MSCI Emerging Markets Index, which will include Chinese firms from June 1.

The list of included A-share firms, those which are listed on the mainland, will be dynamically adjusted once Chinese companies enter the index, an insider from MSCI and several foreign fund managers told Yicai Global. Enterprises to be included will be subject to environmental, social and governance reviews, and those not meeting the required criteria will be removed.

China appears to be making solid preparations for the progression. Yi Gang, governor of the People’s Bank of China, said yesterday at the Boao Forum, hailed as the Asian Davos, that the country would quadruple daily quotas on its Shanghai- and Shenzhen-Hong Kong Stock Connect programs to CNY52 billion (northbound) and CNY42 billion (southbound) starting May 1. Companies trading via the stock links do not face a total trading limit are present, and are capped only by the daily thresholds.

“The move comes with A-shares’ advancement into MSCI indexes, as there is demand from overseas institutional investors,” Fang Xinghai, vice chairman of China Securities Regulatory Commission, said in response to reporters’ questions.

Upping the Ante

MSCI held a conference in Hong Kong late last month, where it disclosed 236 large-cap companies due to be added to the index, the MSCI insider said. This compares with a proposed 222 firms from a list released earlier in March and originally declared in June 2017, when MSCI announced that it would include A-shares in the MSCI Emerging Markets Index and the MSCI All Country World Index starting this June. The companies would make up about 0.73 percent of the emerging markets index.

The firm launched 12 new A-share related indexes in March to expand coverage of the products under the MSCI China A Index, the source added. The new firms include mid-cap companies already in the MSCI China A Mid Cap Index which are eligible for the Mainland-Hong Kong Stock Connect programs and comply with the MSCI Global Investable Market Indices Methodology, a fund manager at the Hong Kong briefing said.

“This not only allows international investors to fully understand A-shares, but also provides a benchmark to pave the way for the future design of related products for funds looking to increase A-share exposure,” he added.

Whether or not the MSCI will include mid- and small-cap stocks in the emerging markets index is still under discussion, another person close to the organization said, adding that market mechanisms still need to be improved.

Editor: James Boynton

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Keywords: MSCI, Emerging Market Index, Foreign Investment Funds, Stock Connect