New York (Reuters) – U.S. index provider MSCI said on Tuesday it will add mainland Chinese stocks to one of its key benchmarks, a landmark decision for the global investment landscape and the Chinese government.
MSCI decided not to add Argentina to the benchmark index and will consult on adding Saudi Arabia. Nigeria will remain a frontier market, awaiting further review.
The full inclusion of domestic Chinese stocks in the widely tracked MSCI Emerging Markets Index could pull more than $400 billion in funds from asset managers, pension funds and insurers into mainland China's equity markets over the next decade, according to analysts.
MSCI’s decision to give so-called Chinese A-shares the green light—after having rejected them for three years—represents a symbolic victory for the Chinese government, which has been working steadily over the past few years to open up its capital markets.
"This decision has broad support from international institutional investors with whom MSCI consulted, primarily as a result of the positive impact on the accessibility of the China A market of both the Stock Connect program and the loosening by the local Chinese stock exchanges of pre-approval requirements that can restrict the creation of index-linked investment vehicles globally," MSCI said in a statement.
The company has been in discussions with Chinese regulators and global investors for nearly four years on whether to add yuan-denominated shares listed in Shanghai and Shenzhen to the benchmark. It had left them out because of concerns over restricted access to China’s equity markets.
Number Of Stocks To Be Included Cut
In March, however, MSCI moved to relax its investment criteria by cutting the number of stocks to 169 from 448 in a bid to address curbs on repatriating capital from China and concerns over the country’s high number of suspended stocks.
The revised proposal helped address these issues because the 169 stocks can be easily accessed by foreigners through the “Stock Connect” link launched in 2014 and significantly expanded in December.