The Wall Street Journal | By: Gregor Stuart Hunter | Updated June 21, 2017 1:12 a.m. ET:
Inclusion of mainland China markets in major benchmark indexes is expected to lead to global investors focusing on corporate governance.
MSCI Inc.’s decision to include mainland Chinese shares in its global benchmarks for the first time could prompt changes to how companies are run, even if the initial amount of capital inflows won’t be enough to effect a sizable shift in the country’s markets, analysts and brokers said.
One of the world’s leading index providers, MSCI said overnight that it would admit 222 Chinese stocks to benchmarks such as its Emerging Markets Index, which is tracked by funds with some $1.6 trillion of assets under management world-wide.
The approval, which came after three years of rejections by MSCI, was greeted with a shrug by investors in mainland China on Wednesday. By the midday break, the Shanghai Composite Index rose 0.2%, while its Shenzhen counterpart gained 0.1%.
The tepid response was viewed in the market as a reflection of the relative caution apparent in MSCI’s decision. After discussions with major fund managers including BlackRock, the index provider said it would admit roughly half the largest number of companies it considered including in past years.
MSCI estimates some $17 billion will flow into Chinese markets—both from passive funds that automatically track its indexes and active fund managers—when the country’s stocks are included a year from now. That is a fraction of the Shanghai and Shenzhen markets’ combined $7.5 trillion market capitalization.
Still, the decision was heralded by market participants who have long salivated over the prospect of gaining greater access to the world’s second-largest economy. The move could change the way that global investors look at China, said Chin-Ping Chia, head of research for Asia Pacific at MSCI.
“It’s about the opening of a new phase of emerging market investing,” he said. “The opening of the Great Wall, so to speak.”
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