- Inclusion of China’s A-share market in the MSCI Emerging Markets Index is a significant step toward integrating China into global financial markets.
- Increased inflows should improve governance standards and boost market liquidity.
- China has emerged and should be considered a developed market.
The curtain is going up on China’s large domestic stock market, known to investors as A-shares.
China’s stock market has long been dominated by local retail investors. But that is set to change. MSCI’s decision to include a sliver of China’s A-share market in its emerging markets equity indexes is a small but significant step in further integration of China’s domestic market into global financial markets.
“It is a significant step, but in some ways the index providers are catching up to a reality that already exists,” says Capital Group vice chairman and portfolio manager Rob Lovelace. “Many investors including Capital have been investing in select companies in China’s domestic market,” he says, adding that “as the world’s second largest economy and stock market, China’s market should start to be integrated into developed global stock market benchmarks such as the MSCI World Index.”