MSCI includes China A-shares; Chinese capital market likely to benefit

Key Benchmark index, Morgan Stanley Capital International (MSCI) announced the inclusion of China’s ‘A-shares’ to its MSCI emerging markets index, stirring the global markets. 

The MSCI had rejected China’s last three insistent attempts to get added to the index. The international index giant is finally adding 222 China A large cap stocks to itself from the coming year, in what has come across as a major vote of confidence from the global investors.     
  
The inclusion is likely to boost the Chinese capital market on expectations of institutional reforms by China in the capital market realm, particularly in the shareholders rights and debt market reforms. It may lead to a leakage of capital market investments from the Indian markets.   

The foreign portfolio investors comprise of nearly 22 per cent of the total equity capital in India, against a significantly lower percentage of 5.7 per cent in China’s equity markets. In case of reforms in the Chinese market leading to lesser restrictions, the Indian capital markets may see a flush out. 

Although the immense political influence and China’s serious shortcomings on the institutional front is difficult to eliminate.
The MSCI’s decision of China’s inclusion was massively overshadowed by the fall in oil prices on increased crude oil production in Libya and Nigeria, dampening the global market at large.  

However, the MSCI inclusion, post the RMB’s inclusion in the IMF SDR in the previous year is testament to the strong support that China’s financial economy enjoys on the international front, despite its struggle with the exchange rate and financial volatility.