Morgan Stanley Capital International revised the definition of the universe of equities it uses for the MSCI China Free Index. The universe now includes companies which are not incorporated in China as long as they are incorporated in Hong Kong and listed on that exchange.
On top of this, their major shareholders have to be Chinese state-owned companies, provinces or municipalities of the People’s Republic of China or companies incorporated there. "In the unique situation of China’s economic system, this revised definition of the MSCI China Free Universe allows for a better representation of the investment opportunities that are available to foreign investors," MSCI said in a statement.
Acknowledging that this use of share ownership to determine country classification was exceptional, the group said this was an effective way of identifying companies with a clear association with China.
MSCI also made some additions and deletions to the index, which will take effect at the end of May. Securities added to the index include Citic Pacific, Denway Investment, Founder Hong Kong and Top Glory International Holdings, all of which have moved from the MSCI Hong Kong universe to the MSCI China Free universe.