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China hopes shares finally enter global index

3 min

Shanghai (AFP)

A US-based firm is to announce Wednesday whether it will finally include Chinese shares in a key global stock index after three previous rejections.

MSCI Inc. has excluded China's "A" shares from its emerging markets index for three years in succession but analysts are hopeful Beijing will be lucky the fourth time round.

Inclusion in the index is seen as significant for China's stock markets because many overseas investors measure the performance of their portfolios against MSCI indexes and are obliged to buy shares in them.

MSCI says its emerging markets index is tracked by more than $1.5 trillion in assets.

The New York-based equity index provider has in the past cited obstacles such as China's restrictions on market access and on moving capital in and out of the country.

But analysts are optimistic about its chances this time, even though the domestic market has been rocked by Beijing's recent efforts to tighten credit -- over concerns that the country's massive debt could trigger a financial crisis.

"The chance is higher than before. China has done quite a lot of work," Haitong Securities analyst Zhang Qi told AFP.

China has been gradually opening its A share market to foreign investors, allowing them to trade selected stocks in Shanghai and Shenzhen through mechanisms linking those markets to Hong Kong.

Overseas investors have also been allowed to buy A shares through a quota system.

But for the most part they have been restricted to "B" shares denominated in US or Hong Kong dollars and traded in Shanghai and Shenzhen, or "H" shares traded in Hong Kong.

Also seen as boosting China's chances is MSCI's decision to slash the number of A shares for inclusion to 169 from the previous proposal's 448.

That would give China a weighting of 0.5 percent in the index compared with the earlier one percent.

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 capitalisation.

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

"A low number of shares and weighting is not important at the beginning," said Li Daxiao, chief economist at Yingda Securities.

"It is like opening a door. Even if it is just a crack, it is a huge improvement compared to being completely shut."

Citic Securities analyst Zhang Qun said inclusion would have "more of an emotional effect than a practical one".

"It is the change from zero to one. If in the next few years the degree of opening up increases... then it could go from one to 10 or even 100," Zhang said.

A spokesman for China's securities regulator said last week that any emerging market index would be "incomplete" without Chinese stocks.

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