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Capital Markets

MSCI China reweighting a big deal – but not that big

There is much fanfare about the decision to increase the weighting of A-shares in MSCI indices. It is a welcome step, but let’s not overstate it.

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“Emerging markets may never be the same.” Say what you like about MSCI, but the index provider clearly believes in its own importance.

Those words form part of MSCI’s announcement on Friday that it will increase the weight of Chinese A-shares – those listed in Shanghai and Shenzhen rather than internationally in Hong Kong and elsewhere – from 5% to 20%.

It’s a bombastic claim, but is it correct?

Clearly, it represents another step in a hugely important process, the opening of China to international investment.

China’s equity market accounts for nearly 30% of all emerging markets (EM) equity, according to MSCI.

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Chin Ping Chia,
MSCI

A quadrupling of the weighting of the domestic market in the MSCI indices is likely to be followed by a rebalancing of both passive and actively managed money; Chin Ping Chia, MSCI’s head of research for Asia-Pacific, says about $80 billion of investment will move as a consequence.

That’s significant, and symbolic, but it’s not quite defining.




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