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MSCI proposes to quadruple China A-shares weight in EM benchmarks

Shanghai at night

MSCI is consulting on whether to increase its benchmarks’ weightings towards China A-shares from next year.

The index provider launched a consultation today with a proposal to grow the proportion of A-shares in its flagship MSCI Emerging Markets index to 3.4% by 2020. The weighting is currently 0.71%.

A-shares, which are listed on the Chinese mainland, were first added to MSCI’s indices earlier this year, with 12 new benchmarks launched in March. The company said today that the implementation had been “successful”.

In its consultation document, MSCI also highlighted that Stock Connect – an equity trading project connecting Hong Kong’s equity exchange with the Shanghai and Shenzhen exchanges – had “proven to be a robust channel to access China A-shares”.

“Currently, Stock Connect daily quota and [renminbi] liquidity are sufficient to address an inclusion factor that is a multiple of the current size,” MSCI said.

There had also been a noticeable decline in the number of trading suspensions on the A-shares market, it added.

The index provider proposed to increase the “inclusion factor” for large cap securities fourfold, from 5% to 20%, in phases throughout 2019 and 2020.

Additions would include companies listed on the ChiNext index, often likened to the US’s NASDAQ market, which MSCI said had 194 stocks accessible to the international market. It has also proposed to add mid-cap companies in 2020.

Fellow index provider FTSE Russell is close to deciding whether to add A-shares to its indices, according to its chief executive Mark Makepeace. He told Bloomberg Television earlier this month that it would likely add an initial weighting greater than MSCI’s current position.

Investors have until 5 February 2019 to submit feedback to MSCI. The consultation document is available here

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