China-A MSCI inclusion: Modest impact on India might lead to a $214-mn outflow

India to see one of the largest dilutions in weights in the MSCI EM, MSCI Asia ex-Japan indices

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 (EM).

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.

CLSA estimates MSCI 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”.