WASHINGTON, March 15 (Xinhua) -- A U.S.-based investment managing firm specializing in Asia, has expected a further expansion of China A-shares' weighting in MSCI following an announced increase by the global index provider at the end of February.
MSCI announced in a statement on Feb. 28 that it will quadruple the weighting of China A-shares, or Chinese mainland shares denominated in yuan, in its global benchmarks by increasing the inclusion factor from the current 5 percent to 20 percent.
It will do so in a three-step process in May, August and November, each time upping the representation of Chinese large cap stocks by 5 percentage points.
"Despite this increase, we believe MSCI indices are still lacking in their representation of China's overall markets and would expect the exposure to continue to grow in 2020 and beyond," Matthews Asia, a subsidiary of the San Francisco-based Matthews International Capital Management, LLC, said in a recent post on its website
China has the world's second-largest equity market both in terms of market capitalization and turnover, it noted.
MSCI also said it will add mid cap China A-shares, including eligible ChiNext shares, with a 20 percent inclusion factor, to the MSCI Emerging Market Index in November.
On completion of this three-step implementation, there will be 253 large cap and 168 mid cap China A-shares, including 27 ChiNext shares, on a pro forma basis in the MSCI Emerging Markets Index, representing a weight of 3.3 percent in the pro forma index, MSCI said in the statement.
The current weight of China A-shares in the MSCI Emerging Market Index is around 0.7 percent.
"This increase in A-shares exposure and the broadening of the universe to include some mid-cap stocks will allow the indices to better reflect the opportunity set within Chinese equities," Matthews Asia said.
According to the firm's estimate, if the inclusion factor were to reach 100 percent, China would make up over 40 percent of the MSCI Emerging Markets Index, including a 16.2 percent allocation to A-shares.
"That said, a future weight increase of China A-shares in the MSCI indexes beyond 20 percent would require Chinese authorities to address a number of remaining market accessibility questions," the firm said.
Those constraints, over which the firm said MSCI is in contact with Chinese regulators, include "restrictions on access to hedging and derivatives instruments as well as operational concerns."
The current Chinese exposure within the MSCI Emerging Markets Index and other indices is heavily weighted to mega-cap internet companies and large Chinese banks, according to Matthews Asia.
