Leading US-based index to include Chinese stocks for 1st time

Chinese stocks will be included for the first time in a leading US-based index of emerging market shares, New York-based MSCI announced Tuesday.

MSCI will include 222 Chinese stocks in its MSCI Emerging Markets Index, representing 0.73 percent of the index. MSCI's decision has been closely-watched as a sign of China's growing importance on international financial markets.

MSCI said the move has "broad support" from international institutional investors and was the result of loosening of restrictions enacted by China on foreign ownership of "A" shares, stock in mainland China-based companies, ownership of which had once been limited to mainland citizens.

"International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion," said Remy Briand, MSCI managing director.

"MSCI is very hopeful that the momentum of positive change witnessed in China over the past years will continue to accelerate."

MSCI has in the past cited obstacles such as China's restrictions on market access and on moving capital in and out of the country. Prior to Tuesday's decision, it had excluded Chinese shares for three years in a row.

Institutional investors praised a decrease in the number of stock suspensions in China, but said the current level is still an "outlier" compared with other markets, MSCI said.

MSCI plans to add the Chinese shares in a two-step process starting in May 2018.

China's inclusion would help around $8 billion flow into its stock markets, Capital Economics said, describing it as "a token inclusion" given the weighting would be the equivalent of 0.1 percent of the domestic market's capitalization.

Nevertheless analysts said China's admission to the index would be a good start.