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MSCI consultation paper proposes smaller initial weighting for China A shares

MSCI issued a consultation paper Wednesday on potential changes to its benchmark indexes for the coming year, including a new proposal that would add a smaller initial fraction of China's A shares market to its emerging markets index than previously considered.

For the past two years, following consultations with money managers and asset owners, MSCI ultimately postponed acting on a proposal to add a 5% chunk of China's A shares market to its emerging markets equity index. That proposal would have left locally-traded stocks on the mainland accounting for roughly 1% of the index.

The new proposal would add 169 large-cap A shares companies, compared to the 448 small-, mid and large-cap stocks under MSCI's previous proposal.

Those large-cap stocks, accessible to investors through the Shanghai and Shenzhen stock connect programs put in place over the past 15 months, would “improve investibility” by keeping the initial benchmark universe “to a reasonable size,” the consulting paper said.

Under the new proposal, A shares would account for 0.5% of the emerging markets index.

MSCI will announce decisions on changes to its indexes effective in 2018 in early June.