The Shanghai and Shenzhen stock exchanges both rallied more than 3 percent overnight. There was no economic news. Instead the rally appears to be tied to the very political battle over whether China's two mainland stock exchanges — the Shanghai and the Shenzhen — should be included in the world's biggest indexes.
MSCI, the world's largest indexer, will soon announce whether it will include China's two mainland stock exchanges — the Shanghai and the Shenzhen — in its global indexes, particularly the MSCI Emerging Markets Index, which is the index used for the MSCI Emerging Market ETF, the world's largest emerging market exchange traded fund.
Right now, only Hong-Kong listed stocks are included in the indexes, there are no stocks from mainland China.
This is an important decision. It would, for example, roughly double the weighting of China in the MSCI Emerging Market ETF.
In a market that is increasingly global, this sounds a bit crazy. How do you ignore $6 trillion in equity market cap represented by the Shanghai and Shenzhen exchanges?