Market Insider

MSCI may add China mainland shares to emerging market index

It's hard for American investors to get their hands on shares that trade in China. But that may change.

An investor reacts at an exchange hall in Fuyang, Anhui Province of China.
VCG | Getty Images

Major stock index firm MSCI has so far excluded Chinese mainland-listed "A Shares" from its prominent emerging markets index. But on Tuesday, MSCI is set to announce a decision on whether it will add Chinese shares to the index. If it includes them, U.S. investors could potentially be snapping them up as early as next year. The MSCI announcement is expected at 5 p.m. ET.

Right now, the Chinese shares listed in the emerging market index are all traded in either Hong Kong or the United States. That means the world's second-largest economy makes up only about one-fourth of the benchmark index, while full inclusion of A shares would bring that ratio to more than one third. With about $1.5 trillion in assets under management tracking the index, China is keen to tap those funds as foreign investors search for returns outside their home markets.

MSCI rejected the Chinese shares last June, citing uncertainty about who actually owns the shares and how easily investors can withdraw their money from Chinese investments. Since then, some analysts say China may have reformed its markets enough to get included — but issues around transparency and access linger.

For example, China's stock market crashed last summer, and some of its stocks have been suspended for months.

"There are still some worries about voluntary suspensions," Ian Hui, a global market strategist at JPMorgan Asset Management, told CNBC in an email. "Overall, I think it's possible for inclusion to be announced this month, but the house view is that it's more likely happening within the next 1 or 2 years, since there are still some lingering issues."

Potentially tipping the balance toward MSCI inclusion is China's announcement last week that it will give the United States a high ceiling on how much it can invest in Chinese assets using yuan that are traded outside the mainland.