SINGAPORE (June 4): After five years and four rounds of MSCI discussions with global investors, MSCI is set to include 234 China A-shares in the Emerging Markets and All Country World indices on June 1 in a two-step inclusion process. (The Edge Singapore went to print in the early hours of June 1.) An Index Inclusion Factor (IIF) of 2.5% was applied in the first step and 5% will be applied from September.

The initial index inclusion will make up only about 0.9% of the MSCI Asia ex Japan Index and 0.8% of the MSCI Emerging Markets Index. But this could rise to 14% to 18%. With over US$1.9 trillion ($2.5 trillion) in assets that are likely to be included in the MSCI Emerging Markets Index, funds that track the index will have to allocate US$14.8 billion to US$15 billion to A-shares after September to avoid deviation.

Some market watchers reckon that the inclusion is already spurring active funds to rebalance their portfolios in favour of some of the 234 China A-shares that are to be included. The shares with the highest index weightings are likely to be Kweichow Moutai Co, Ping An Insurance A, China Merchants Bank A, Hangzhou Hikvision Digital Technology Co and Midea Group Co. (Ping An Insurance and China Merchants Bank are also listed on Hong Kong’s H-share market.) Whenever indices are rebalanced, there will be passive fund flows, as exchange-traded funds that track these indices also have to be rebalanced.

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