The index provider completed its final rebalance for 2019 on Tuesday.
MSCI has completed the third and final phase of the 20-percent partial inclusion of China A-shares in its indexes, the provider of research-based indexes and analytics announced in a statement on Tuesday.
Following the rebalancing, A-shares have a weight of 0.5 percent on its flagship ACWI index and 4 percent on the Emerging Markets index. The MSCI China Index, which includes China A shares and offshore listed shares, will include 710 securities representing 4 percent and 34 percent of the MSCI ACWI and MSCI Emerging Markets Indexes, respectively, MSCI said.
The New York-based index provider started adding stocks in China to its benchmarks in 2018 and began increasing its weighting in 2019. In March, CEO Henry Fernandez defended MSCI's decision to increase the weighting of Chinese shares amid severe criticism.
«End of the Beginning»
While MSCI's decision to raise the China A-shares inclusion factor fourfold was a key step in opening up the domestic China equity opportunity to foreign investors, Thomas Taw, BlackRock's head of APAC iShares Investment Strategy, said that it is just the «end of the beginning» as A-shares representation in the indexes are still small.
«To put this in perspective, the representation of just two companies, Microsoft and Apple, will still have a larger weighting in aggregate,» Taw said.
«Unique Opportunity»
BlackRock projected China's equity market cap to reach $27 trillion by 2027. However, Taw noted several hurdles to full inclusion, which include the lack of risk management tools, short settlement cycle of China A-shares, the discrepancy between Hong Kong and mainland China holidays, and the foreign ownership cap for companies.
«Either way, the road to full inclusion for Chinese onshore equities may likely be a unique opportunity for foreign investors; both passive and active,» Taw said.
