MSCI starts process to lift Chinese stocks’ weighting

Global index compiler MSCI Inc announced on Tuesday to double the inclusion factor of China's A shares in its indexes and add new A-share constituents by the end of May.

Inclusion factor of 238 large-cap A-share constituents in MSCI indexes will increase from 5 percent to 10 percent, while another 26 A shares will be added with a 10 percent inclusion factor, the MSCI announcement said.

The inclusion factor refers to how much of a stock's free-float market capitalization, adjusted by the MSCI, is included in its indexes.

The adjustment is due to take effect as of market close of May 28, by which the weight of A shares in MSCI Emerging Markets Index will rise to 1.76 percent, the announcement said.

According to a JPMorgan report, the adjustment may usher in a net $19 billion of passively managed funds into the A-share market. Given that active portfolio managers may also up their holdings in A shares based on the adjustment, the total net inflow may be higher.

The 26 new A-share constituents include 18 ChiNext stocks, covering healthcare, communications, software, new energy and other sectors.

Stocks with the largest capitalizations are livestock breeder Wens Foodstuff Group Co Ltd, medical equipment manufacturer Shenzhen Mindray Bio-Medical Electronics Co Ltd, and lithium-ion battery maker Contemporary Amperex Technology Co Ltd.

The adjustment is part of MSCI's three-step plan to further include A shares, with the next steps to take effect in August and November, raising the A-share market's weighting in MSCI Emerging Markets Index to a projected 3.3 percent.

Completion of the whole plan will trigger about $70 billion of foreign capital inflow, analysts said.