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MSCI’s China A-shares increase could trigger $70bn inflows

China_growthMSCI’s decision to increase the weight of China A-shares in its global benchmarks from 5% to 20% starting in May “could lead to upwards of $70 billion in equity flows into the A-share market in 2019”, according to HSBC Global Asset Management. The other two steps are set to take place in August and November this year. As Beijing eyes greater foreign participation and seeks to become more integrated into the global financial system, better representation in global indices could have a significant effect on how its markets develop over the medium to long-term. “China’s A-shares have a low correlation with global equity markets, providing overseas investors with diversification benefits and allowing them broader access to one of the world’s largest and fastest growing economies and consumer markets,” said Mandy Chan, head of Chinese and Hong Kong equities at HSBC Global Management in a statement “At the same time, increased foreign participation in the domestic market is expected to lead to more market transparency and better corporate governance in China, as companies start to adopt higher accounting standards and disclosure policies,” Chan added. However, MSCI’s decision is not the only factor driving the rally in China’s equity markets said Chan, noting the government’s monetary and fiscal measures. “Finally, besides MSCI, other index providers such as FTSE Russell and S&P Dow Jones will also begin to include A-shares in their global benchmarks this year, attracting more flows from passive funds and other benchmark-tracking portfolios,” said Chan. ©2019 funds global asia

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