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MSCI to add China’s local currency shares

Context

  • MSCI plans to add China’s local currency shares to its benchmark emerging markets index.

What is the ‘MSCI Emerging Markets Index’?

The MSCI Emerging Markets Index is an index created by Morgan Stanley Capital International (MSCI) designed to measure equity market performance in global emerging markets. It consists of indices from 23 emerging economies such as Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the … Continue reading “What is the ‘MSCI Emerging Markets Index’?”

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Why are MSCI indices significant?

  • Presence in MSCI stock indices attracts investment interest from foreign and brings an earmark of financial credibility.
  • Moreover, the indices are closely tracked by investors from all around the globe.

How will it impact china?

  • The index giant will add 222 China ‘A’ Large Cap stocks which includes shares from Bank of China and Tsingtao Brewery on a steady basis beginning next year.
  • China’s equity market share is among the world’s elite in terms of capitalization, however it is not recognized as such due to its closed economy and restricted capital control standards.
  • With the inclusion in the MSCI emerging market index, the China equity market shall attain more credibility.
  • As the China gains more weightage in the MSCI index, more they shall entice overseas capital in the long term
  • MSCI proposes to include a 5% market capitalization of A-shares into the EMI, which could translate to a 1.1% weighting in the index. Once it sees signs of further simplification of restrictions in the countries capital mobility and accessibility, MSCI could eventually boost allocation to 100%.

Impact on India

  • Although experts predict minimal impact on the Indian market in terms of outflows of cash, however, if MSCI continue to add more China ‘A ‘shares, it might influence the flow of cash out of India.

Q&A

  • The inclusion of China A-shares in the MSCI emerging markets index may still offer hindrance in benefiting the investors. Comment?

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