The world’s largest index provider MSCI’s decision to include mainland China stocks (known as China A-shares) in its world indices will cost other emerging markets
However, the impact will be modest, says the brokerage. India and others will have to make way for inclusion of China A-shares in MSCI’s flagship EM index.
Although the move is symbolically important for China, MSCI
has only assigned weightage of just 0.73 per cent to the 222 China A-shares in the MSCI
EM Index. Brokerage firm CLSA
India’s weight in MSCI
EM index will reduce by only seven basis points (bps) from 8.85 per cent to 8.92 per cent, resulting in a potential outflow of $214 million.
Similarly, other markets
like South Korea and South Africa will see their weight drop by 12 bps and 4 bps, respectively. South Korea could potentially see outflows of $373 million, while South Africa could see a modest outflow of $160 million.
China A-share inclusion could result in inflows of $16 billion by both active and passive fund managers. Goldman Sachs says while South Korea, Taiwan, and India will see the largest dilution in index weights in the MSCI
EM and MSCI
Asia ex-Japan indices, the “selling pressure could be modest”.