China Will Be Part of a Popular Stock Index, Opening the Door to Foreign Money
“But the MSCI symbolic move falls well short of diverting global passive money into China’s equity markets.”
“The financial service industry is a competitive service industry which benefits from opening up,
and will continue to expand its opening up,” said Zhou Xiaochuan, the governor of the country’s central bank, the People’s Bank of China.
“Having exhausted the ability to use state-owned banks as A. T.M.s, Beijing would love to entice foreign money into China’s stock
and bond markets,” said Diana Choyleva, a China specialist at Enodo Economics, a financial advisory firm.
The index company disclosed in a draft paper this year
that it was considering a much smaller percentage role for Chinese shares in its emerging market index than in previous years, notably by reducing by two-thirds the number of Chinese stocks that would be tracked in the index
Most of these stocks are already trading on the Stock Connect, a closed system
that allows international investors to buy Chinese domestic stocks in Hong Kong, a semiautonomous Chinese city that, unlike mainland China, has a freely traded currency, the Hong Kong dollar.
“MSCI inclusion not only mandated global investors to allocate more funding into the Chinese A share market,
but also provided a much-needed impetus to move Chinese stock markets closer to global standards,” said Shen Jianguang, a China economist at Mizhuho Securities.
As a result, investment funds representing $1.6 trillion will be under heavy
but informal pressure to start buying Chinese domestic stocks next year, leading to $17 billion in fresh money being pumped into the stock markets, according to MSCI.
