• In June 2017, MSCI announced the partial inclusion of China’s domestically traded, yuan-denominated stocks, or so-called A-shares to MSCI China, MSCI Emerging Markets (EM), and MSCI All Country indices, which is to be implemented from June 2018.
• A-share inclusion was previously rejected in any indices due to limited market accessibility to global investors and restrictions on repatriation of capital, among others things. Then, the Chinese authority addressed these issues gradually, in particular by launching the Stock Connect schemes.
• At 5% inclusion factor,2China A-Shares will account for roughly 0.8% of the MSCI EM Index, 1.1% of the MSCI Asia Index, and 0.1% of the MSCI AC World Index. The inclusion of China A-shares this year will take effect through a two-step process of 2.5% each, effective on June 1, 2018 and September 3, 2018.
• While inclusion has symbolic significance, there should be limited financial implications for other Emerging Markets, at least in the short-term.
• We are looking at the opportunities that the A-share market presents, with a clear preference for sticking to strict valuation criteria and good corporate governance. However, A-shares trade at a large premium over H-shares, so we currently prefer the latter in the Chinese market.
Read the complete white paper at the link beneath Related Links