Will mainland Chinese shares finally be included in the MSCI?
Can you guess which country boasts the world’s second largest stock market and third largest fixed interest market?
…… whilst you would be in the right part of the world, you would have chosen the wrong country.
The second biggest share market and third biggest bond market both belong to… X Factor type pause… China.
Incredibly, to date, China’s internal markets have not figured in the main investment indices for various reasons, with the main one being capital controls. China still controls the ‘flow’ of its currency and has recently tightened rules to limit what it calls ‘back door’ export of its currency, the Renminbi.
For the fourth time in as many years, MSCI – which is the leading emerging markets index provider – is consulting on whether, and how, to include mainland Chinese shares in its emerging markets indices.
Chinese shares listed away from the mainland, for example Hong Kong, already account for 27% of the MSCI Emerging Market Index. MSCI’s latest proposal is to include only mainland Chinese shares accessible from Hong Kong initially, with a very small weighting. Ultimately, China could account for around 40% of the MSCI Emerging Market Index and hence the decision to start slowly.
Press reports suggest that this time around China will be added to the MSCI indices when the decision is made in June. The world’s largest investment manager, BlackRock, is in favour of China’s inclusion and this will add to the likelihood that it will happen.
Keith Bonner, lead IFA and Director of HSC Financial Services says “If you want to increase your exposure to the world’s second largest stock market, there are a variety of options available which we would be happy to discuss.”
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