About $17 billion to $18 billion should initially flow into mainland China's stock market once some of those stocks are added to the key MSCI Emerging Markets Index, an MSCI executive said Tuesday.
MSCI announced earlier Tuesday a long-awaited decision in favor of addingstocks, known as A shares, to the firm's emerging markets index, which is tracked by an estimated $1.6 trillion. As a result, non-Chinese investors that follow the MSCI Emerging Markets Index must buy Chinese A shares to match the updated version of the index.
Due to limited access to the mainland Chinese stocks, foreign investors own less than 1.5 percent of that market, Chin Ping Chia, head of research for Asia Pacific at MSCI, said on a conference call with journalists after the inclusion decision was announced. He estimated $17 billion to $18 billion could flow into Chinese A shares.
MSCI's decision to add 5 percent of the floating market cap for 222 China A shares will eventually give mainland China a weight of 0.73 percent in the emerging markets index. Stocks on the list include Bank of China and Tsingtao Brewery.
Lucy Qiu, emerging markets strategist at UBS Wealth Management, said the MSCI decision should improve short-term sentiment for Chinese A shares. But she estimated that initial flows into China's mainland stock market will be far lower — around $7 billion to $8 billion.