MSCI has been saying no to China’s A-shares for years. But this year, the index group will finally include China’s A-shares in its MSCI Emerging Markets Index (“MSCI EM index”), marking a watershed moment for the world’s second largest equity market.
For many investors, this is welcome news, as China is under-represented in global equity indices relative to its economic influence. Despite China accounting for 17% of global GDP, 11% of global trade, and 9% of global consumption, the country has a weighting of just 3.65% in the MSCI All Country World Index. And, because foreign ownership of A-shares have been very limited due to strict quotas set by the Chinese government, foreign investors have not had full access to China’s secular growth sectors, including materials, industrials, consumer discretionary, and healthcare. By including A-shares in the MSCI indexes, investors will be able to gain exposure to sectors of the economy currently under-represented in other share classes . . .