Markets look certain to benefit from planned move

Chinese stock market will be boosted if A shares are included in the MSCI Emerging Market Index later this year.

Jing Ulrich, vice-chairwoman of Asia Pacific at JPMorgan Chase & Co, expected a brief rally for Chinese shares when the inclusion is finally agreed.

Jing Ulrich, vice-chairwoman of Asia Pacific at JPMorgan Chase& Co. [Photo provided to China Daily]

Global equity index provider MSCI Inc mentioned in March that it will focus on a smaller number of A-share companies, raising expectations that A-shares could finally be included in the international benchmark index this year.

"The probability of the inclusion of A-shares in MSCI has increased this year, although initial weighting will likely be small," Ulrich said.

"Inclusion would be an important milestone for China's equity market and may trigger a short-term rally due to increased expectations of fresh liquidity entering the onshore market," she added.

Ulrich stressed that the Chinese government has taken concrete steps to open up its equity markets to overseas investors after rolling out the Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect in 2016 as well as a bond connect program this year.

"While the stock connect programs will provide international investors direct access to most companies traded in the Chinese mainland, the bond connect program can enhance the liquidity and pricing efficiency of Chinese bonds in the market," said Ulrich.

"These programs are essential in paving the way for Chinese equities and bonds to be included in major global indices," she added.

China's securities regulator vowed last week to stick to capital market reforms regardless of whether the country's A-shares are included in the MSCI Emerging Market Index.

"With or without the inclusion, China's stock market, and our capital market as a whole, will not alter its direction of reform toward market-oriented, law-governed and international development," said Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission.

Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission. [Photo provided to China Daily]

Zhang has welcomed the prospects of the MSCI including A-shares in its benchmark index. He pointed out that any emerging market index without Chinese stocks would be "incomplete".

Ning Jing, a portfolio manager at Fidelity International, confirmed that the long-awaited inclusion of A-shares in the MSCI would help institutionalize the A-share market.

"This would potentially increase the liquidity levels and introduce comparatively stable flows into the market," she said. "Overall, it would be a positive development for the smooth functioning of the market."

Ning also backed the government's efforts toward increasing major institutional involvement in Chinese markets.

She said there are a range of blue chip stocks in the A-share market, representing well-established business models with strong pricing power and robust cash flows in Shanghai and Shenzhen bourses.

"So far, this market is dominated by retail investors, who are influenced by short-term swings in sentiment as well as willing to overpay for growth levels that are not sustainable over an economic cycle," Ning added.

Xinhua contributed to this story.