China local shares to rise above 4% weight in MSCI EM benchmark

SHANGHAI/NEW YORK (Reuters) - Global index provider MSCI said on Thursday mainland Chinese stocks, or A shares, will rise to a weight of 4.1% in the MSCI Emerging Market Index, up from 2.55% currently, as it implements the final step of the weight increase of Chinese shares in its widely-followed emerging markets benchmark .MSCIEF.

MSCI will also add a list of Chinese mid-caps as planned, the index provider said in a statement following its November semi-annual index review.

Further weight increases for Chinese shares will depend on Chinese authorities addressing several common areas of concerns from institutional investors, such as the lack of effective hedging tools to manage China A share risks, Zhen Wei, MSCI’s Head of China Research, told Reuters last month.

The MSCI announcement comes as China is stepping up opening of its capital markets amid a 16-month trade war with the United States. Foreign holdings of Chinese stocks rose to a record high at the end of September.

The increased weight of Chinese mainland stocks comes a day after a group of U.S. lawmakers introduced legislation that would block a federal retirement fund from investing in Chinese stocks.

MSCI, which added Chinese stocks to its global benchmarks in a milestone move in 2018, announced in March that it would quadruple China A shares’ inclusion factor to 20% in three steps, with increments of 5 percent in May, August and November.

MSCI estimated at the time that the move could draw more than $80 billion of fresh foreign inflows into China.

The weight increase will be reflected effective at the market open on Nov. 27, the index provider said.

Reporting by Samuel Shen in Shanghai and Rodrigo Campos in New York; Editing by Sandra Maler and Daniel Wallis