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Wednesday’s decision by MSCI to include Chinese domestic stocks in its global benchmark equity index is a big deal, but not quite as big as it looks.
Symbolically, it’s enormous. After years of discussion and disappointment, next year A-shares will be part of the most powerful EM index in the world, one which is tracked by about $1.6 trillion of money.
People have had exposure to Chinese stocks for years through listings in Hong Kong and even New York, but this is the real thing: China in its unvarnished domestic glory, Shanghai and Shenzhen-listed stocks, collectively the second-largest equity market in the world.
However, it won’t make a huge difference to asset managers in practice, or not directly, anyway. MSCI is adding 222 A-share large-cap stocks. Between them they will represent just 0.73% of the MSCI EM index.
When one considers that China-linked stocks already account for 27% of the index through those Hong Kong and New York-listed stocks, the Alibabas and ICBCs and the PetroChinas, it doesn’t seem so significant.
