The MSCI index is the most commonly used benchmark index by global portfolio managers. So what are the benefits of joining MSCI for A-shares? Today, Financial Manager is here to discuss it with you!
MSCI is the abbreviation of MSCI Corporation, a well-known American index compilation company. It is a supplier of equity, fixed assets, hedge funds, and stock market indexes. It compiles a variety of indices. The MSCI index is the most commonly used benchmark index by global portfolio managers. According to MSCI estimates, more than 90% of institutional international equity assets in North America and Asia are based on the MSCI index. There are as many as 5,719 fund companies tracking the MSCI index, with total funds reaching US$3.7 trillion. MSCI is headquartered in New York and has offices in Geneva, Switzerland and Singapore, responsible for global business operations, as well as regional representative offices in London, UK, Tokyo, Japan, Hong Kong, China and San Francisco, USA. Its employees come from all over the world and have more than one hundred full-time employees.
According to MSCI estimates, more than 90% of institutional international equity assets in North America and Asia are indexed by the MSCI index. According to a Merrill Lynch/Gallup survey, about two-thirds of continental European fund managers use MSCI as an index provider. Therefore, if A-shares are included in the MSCI index, some overseas funds will invest in A-shares. The inclusion of A-shares in the msci index will bring about US$20 billion, equivalent to 100 billion yuan. That is the trading volume in Shanghai in one day. The allocation of these funds is blue-chip blue-chip stocks in Shanghai and Shenzhen. Due to foreign exchange controls and their opening time, it is impossible to enter the market immediately. A-shares are included in MSCI’s impact on the capital market. It has far-reaching implications, but has no impact on the near-term index.
MSCI’s inclusion of A-shares will be beneficial to its long-term development, as it will promote further integration of China’s domestic market with the global capital market. Once included, it is estimated that US$8-10 billion of funds tracking the emerging market index will passively flow into A-shares. However, we do not believe that there will be a significant impact on the A-share index in the short term, because the daily trading volume of A-shares this year has reached US$70 billion, and the total market value is approximately US$8 trillion.
Although the incremental funds that A shares can bring after being included in MSCI are only tens of billions, the greater significance lies in whether the international financial market recognizes A shares. Face is more important than bones. If it is included, it will be good for the underlying blue-chip stocks; if it is rejected, it will be good for small and medium-sized enterprises. The decision rests with MSCI, it is a business decision. It will bring shock to the stock market, but it will not change the trend. Investing in stocks is good for financial stocks, consumer stocks and technology stocks with large market capitalization on the main board.
MSCI’s opening of the door to China’s A-shares this time will bring a capital flow of US$210 billion to the stock index in the next five years.
Historically, both Taiwan and South Korea experienced a round of stock market gains after joining MSCI. In the medium to long term, it will help increase the proportion of institutional investors. Foreign institutional investors will participate more extensively in A-shares and improve the investor structure. At the same time, it will promote the allocation of global funds to Chinese assets and promote the internationalization of the RMB.