All eyes are on the Chinese markets as on Wednesday this week, about 4 hours before Shanghai opens for trade, MSCI Inc. (MSCI, -0.32%) is expected to announce if it will accept top yuan-denominated stocks from China into its EMI (Emerging Markets Index).
This index is considered to be extremely influential and is tracked by over $1.6 trillion in assets worldwide.
Should this move materialize, investors can expect to see a rally in Shanghai blue chips. Added to this, the Wall Street Journal recently reported that major funds such as those of Vanguard Group Inc. are planning to purchase the relevant Chinese equities before the decision is made by MSCI on Wednesday at 5:30 a.m. in Shanghai. This will then fall on Tuesday in the U.S. at about 5:30 p.m. Eastern time and the information will be available on MSCI’s website.
Today, “H-shares” which are Hong Kong-listed shares of Chinese companies already make up a sizeable portion of the MSCI EM Index. Also, recently, their rival FTSE Group which is owned by the London Stock Exchange (LSE, -2.33% LDNXF, -2.78%) added the “A-shares” which are mainland-listed stocks into transitional global indexes.
While the possible MSCI move has been in the headlines in China for quite some time, there is a lot of uncertainty among analysts regarding if MSCI will take the plunge into equities from China on Wednesday or if it will wait awhile longer until financial reforms in the country have stabilized.
In June last year, investors were against the addition of A-shares in the benchmark. Their reason was that China still restricted access to the markets. Interestingly, since then, the Chinese markets have been more open to the world and this was evident with the launch of the milestone Hong Kong-Shanghai Stock Connect scheme. This scheme enables foreign retail investors, for the first time, to purchase mainland Chinese equities directly.
According to Qi Wang, the founder and chief investment officer of China Forward Capital Group, MSCI will probably wait a while longer before including the A-shares. Wang explained that as a result of expected policy changes in the 2nd half of this year, MSCI might be encouraged to delay their decision to later in the year.
In agreement to Wang’s view, Ilya Feygin, the managing director of WallachBeth Capital, sees ‘a greater than 80% chance’ that the MSCI indices will include China’s A-shares by only June next year and that Chinese stocks are not likely to be included immediately in the announcement expected on Wednesday.
The bottom line is whether MSCI includes China stocks this week or later in the future, this move will have a big impact on the financial markets so keep your eyes on this one.