MSCI says China A shares debut in emerging markets index a hit

A senior MSCI executive welcomed the smooth inclusion Thursday of an initial 2.5% slice of China's A-shares markets in the MSCI Emerging Markets index but said investor feedback will determine how quickly the rest of those mainland markets are added.

"We're very happy with the implementation," said Sebastien Lieblich, MSCI's Paris-based managing director and global head of equity solutions, on an MSCI webinar for reporters.

An additional 2.5% inclusion of those markets, which will lift the weight of A shares in the emerging markets index to roughly 80 basis points, is slated for the end of August.

After that second hurdle is cleared, the pace of follow-on steps — which will eventually lift A-shares' weight in the index to 16% when the Shanghai and Shenzhen markets are fully included — will depend largely on feedback from investors using the index, said Mr. Lieblich.

Moves by China's regulators to further improve market access would provide a tailwind, but as MSCI considers whether the next round should add a similar 5% of those markets to the index or potentially "look at increments that go beyond that 5% ... everything depends on the feedback" MSCI gets, Mr. Lieblich said.

After five years of study, the addition of A shares to an emerging markets index where China's Hong Kong-listed H shares and overseas listed shares already have a commanding 30% weighting promises to "drastically change the landscape" of emerging markets investing, the MSCI executive said.

When fully included, Chinese companies listed on the mainland and abroad will account for more than 40% of the index — at which point investors will have to consider whether they want that exposure as part of a broader global emerging markets index or have "China on the side" as a separate allocation, he said.