Tom Holland

Abacus | US$400 billion? Er, calm down. The MSCI is no biggie for Chinese stock markets

Anyone buying into A shares today through the Hong Kong stock exchange’s Connect scheme in the expectation of vast inflows following inclusion in the emerging markets benchmark is likely to be sadly disappointed

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Whichever way you look at it, US$400 billion is not really about to flow into China’s domestic stock markets. Photo: AFP

Tom Holland

Published: 7:12am, 21 May 2018Updated: 7:06am, 21 May 2018

From the media coverage, you would think it was the most important event to happen all year. From next month, 234 shares listed on China’s onshore stock markets are to be added to the emerging markets benchmark compiled by international index company MSCI.

“US$400 billion expected to flow into Chinese stocks after MSCI inclusion” proclaimed a breathless headline in our very own South China Morning Post, quoting a “top fund manager”.

Now, US$400 billion is a lot of money by anyone’s standards. It’s roughly the capitalisation of Singapore’s entire Straits Times index. If that amount of additional cash were really about to flow into China’s domestic stock markets, it would be big news indeed.

Unfortunately, it’s time for a reality check.

Stock prices at a securities company in Beijing. Photo: AFP

Firstly, it’s worth noting that the shares of Chinese companies have been included in MSCI’s emerging markets index for years. Until now however, the index compiler has only selected shares listed in Hong Kong or on US exchanges.

Poor governance and regulatory standards and the difficulty of repatriating funds kept A shares – domestic shares of mainland companies denominated and traded in yuan by mainland residents – out of the widely followed benchmark.