(Yicai Global) June 27 -- Morgan Stanley Capital International, MSCI, world’s biggest stock index provider, has decided to include China’s A-shares in its Emerging Markets Index. It is a milestone decision and turning point for China’s capital market as incorporation of A-shares in the MSCI EM Index had been long-sought. It has wide-ranging and long-term ramifications for global finance. Let’s have a look:
Inclusion of A-shares, the mainland equities, in the Index means international investors will be able to have direct access to the shares and buy and sell and include them in their funds. For example, an American teacher, small retailer or pensioner may unknowingly start owning Chinese stocks thanks to their fund management.
An estimated USD10 billion is expected to be poured into the Chinese stocks through foreign investors, which would mean a substantial cash injection into the companies whose shares are traded and the Chinese economy in general. It is likely to create changes in global finance, leading to considerable shift to Chinese stocks, especially those of blue-chip companies.
It would help internationalize Chinese currency the yuan and increase its significance, a sought-after objective by China’s economic and financial decision-makers. As a nearly USD7 trillion market goes global, it would also help make the yuan a global currency.
Finally, it will encourage China’s economy planners to further open up financial market, a desired outcome the global financial community would like to see. It would help tighten corporate governance issues. Therefore, MSCI’s decision marks a pivotal point for the global finance at a time when protectionist and pro-globalization paradigms clash, creating increasingly worried investors. The inclusion of China’s A-shares in the Index creates a much-needed breathing space, new opportunities and further incentive for international investors and represents a welcome development for global finance.