China inclusion in MSCI EM may increase weightage by only 5%

Global investment houses, such as Goldman Sachs, see 70% probability of China’s A-shares being included in the MSCI Emerging Markets index, which is likely to be reviewed on June 14. CLSA and HSBC see more than 50% possibility of A-shares inclusion, while Citigroup anticipates about 51% likelihood. However, most analysts do not expect full or 100% inclusion of Chinese A-shares, the chances they see is only 5% incremental increase in the weightage in MSCI Emerging Market index. Analysts said China’s weightage will increase to about 27.3% from 25.9% post a possible 5% inclusion in the index. Christopher Wood, managing director at CLSA said: “It will be a close call, we guess there is better than 50% chance of an incremental inclusion, say 5% of the free-float adjusted A-share market cap which would mean an estimated 1.1% weightage in the MSCI Emerging Market index.” China currently accounts for 25.9% of the MSCI EM index through shares of Chinese companies listed elsewhere, mostly in Hong Kong and New York. If all A-shares are included at their full weight in the MSCI EM index, then China’s weighting would jump to 39%, implying more than estimated $180 billion of A-share buying from investors who track the index.