China Will Be Part of a Popular Stock Index, Opening the Door to Foreign Money<br />“But the MSCI symbolic move falls well short of diverting global passive money into China’s equity markets.”<br />“The financial service industry is a competitive service industry which benefits from opening up,<br />and will continue to expand its opening up,” said Zhou Xiaochuan, the governor of the country’s central bank, the People’s Bank of China.<br />“Having exhausted the ability to use state-owned banks as A. T.M.s, Beijing would love to entice foreign money into China’s stock<br />and bond markets,” said Diana Choyleva, a China specialist at Enodo Economics, a financial advisory firm.<br />The index company disclosed in a draft paper this year<br />that it was considering a much smaller percentage role for Chinese shares in its emerging market index than in previous years, notably by reducing by two-thirds the number of Chinese stocks that would be tracked in the index<br />Most of these stocks are already trading on the Stock Connect, a closed system<br />that allows international investors to buy Chinese domestic stocks in Hong Kong, a semiautonomous Chinese city that, unlike mainland China, has a freely traded currency, the Hong Kong dollar.<br />“MSCI inclusion not only mandated global investors to allocate more funding into the Chinese A share market,<br />but also provided a much-needed impetus to move Chinese stock markets closer to global standards,” said Shen Jianguang, a China economist at Mizhuho Securities.<br />As a result, investment funds representing $1.6 trillion will be under heavy<br />but informal pressure to start buying Chinese domestic stocks next year, leading to $17 billion in fresh money being pumped into the stock markets, according to MSCI.
