With steady progress in the MSCI's inclusion of Chinese A-shares, China's financial market is improving for global investors looking for opportunities from China's wider opening up.
As recognition of China's financial openness, global index provider MSCI has taken gradual moves to include the A-shares in its index system.
The MSCI said Monday that as the first step of the partial inclusion, 234 companies would be added to the MSCI China Index as well as relevant global and regional composite indexes as of the close of May 31, 2018.
The shares will be added at 2.5 percent of their Foreign Inclusion Factor adjusted market capitalization, representing aggregate weights of 1.26 percent and 0.39 percent, respectively, in the MSCI China Index and the MSCI Emerging Markets Index.
The second step of the inclusion will coincide with the August 2018 Quarterly Index Review, when the representation of the FIF-adjusted market capitalization of Chinese A-shares will increase to 5 percent.
The institution's acceptance of A-shares is based on the past achievements of China's reform and opening up.
As early as 2002, China unveiled measures to allow qualified foreign institutional investors to invest in China's securities market within approved quotas. The combined quota has been on constant rise ever since.
A few years later, a similar system was developed to allow qualified domestic institutional investors to invest overseas.
In 2014 and 2016, the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect programs were made available to domestic and overseas investors as a more extensive way of financial opening up.
The country has been taking gradual but resolute steps to open up the financial sector to boost the Chinese financial sector's international competitiveness and ability to serve the real economy.
The opening up measures won the MSCI's recognition in June 2017, when the MSCI announced it would partially include large cap China A-shares in the MSCI Emerging Markets Index and the MSCI ACWI Index.
"With the increased liberalization and internationalization of the China market, investors have expressed a clear need for more insight and tools to make better informed investment decisions," said Theodore Niggli, head of MSCI's Asia Pacific index products.
Last month, Chinese central bank governor Yi Gang announced a series of new measures for the financial sector to expand opening up, as China marks the 40th anniversary of the reform and opening up policy this year.
The measures include expanding the daily quotas for mainland-Hong Kong stock connect programs and relaxing the shareholding ratio requirement for foreign capital investing in financial companies.
Although the MSCI's A-share inclusion will not become effective before June 1, overseas investment into the A-share market through the stock connect programs has been rising since last month, Ping An Securities said in a research note.
"The value of A-shares in global asset allocation is gradually increasing," the brokerage firm said.
The weekly net inflow of funds from Hong Kong to the Shanghai and Shenzhen stock exchanges had been rising for six consecutive weeks since the end of March.
Xie Zhengbin, research director of MSCI Asia Pacific, believes the MSCI inclusion is positive for the A-share market's internationalization, further opening up and improvement of investor structure.
With continuous opening up, "entry of investment from all around the globe will be an irresistible trend," Ping An Securities said.
