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MSCI to increase weighting of Chinese A share, to add mid-cap stocks

Global index provider MSCI will quadruple the weighting of Chinese A shares in its global indexes later this year, it said on Thursday, potentially attracting more than $80 billion of fresh foreign inflows to the world’s second-largest economy.

In a statement released on Thursday, MSCI said it will increase the inclusion factor of Chinese large-cap stocks to 20 per cent from the current 5 per cent in two steps, in May and in August 2019. That will bring the weighting of Chinese stocks in the MSCI Emerging Market Index to 3.3 per cent from roughly 0.7 per cent currently.

The announcement could add fuel to a stock market that has jumped over 20 percent this year, partly boosted by the expectation that Beijing and Washington will soon reach a deal to resolve their trade dispute.

MSCI also said it will add Chinese A Mid-Cap shares, including eligible ChiNext shares, with a 20 per cent inclusion factor, to the MSCI indexes in November, boosting the number of Chinese constituents.

After implementation, the MSCI Emerging Markets Index will include 253 large-cap and 168 mid-cap China A-shares, representing a weight of 3.3 percent in the pro-forma index.

Rival index publisher FTSE Russell and S&P Dow Jones Indices will both start including Chinese mainland shares to their global indexes this year as Beijing steps up efforts to integrate China’s capital markets into the global financial system.

Fang Xinghai, vice chairman China’s securities regulator, expected Chinese stocks are expected to see capital inflows this year double to about 600 billion yuan.

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