TAIPEI, Taiwan -- China has done what it can to make foreign funds want to invest in volatile "A" shares, but many still don't. Someday soon they may be forced to.
China-traded shares are being considered for inclusion in the influential MSCI index of emerging market stocks, possibly in the first half of this year, analysts and media reports say. Inclusion would prompt ETFs tracking that index to rebalance by shifting money to China. Mutual funds that use the index as a benchmark may also feel compelled to reallocate.
No one would be happier than China. The government has gone on buying sprees, tweaked its rules and liberalized the yuan currency to control volatility in "A" shares since a 40% slide in mid-2015. But prices keep falling, including a 13% decline this year on the benchmark Shanghai Composite Index. Gradual inflows of foreign investment, including some of the $1.7 trillion now benchmarked to the index, would lift the market.
"They're looking at (MSCI) as a way to gain a global standard for 'A' shares, and there would obviously be more flows into A shares over the long term," said Charles Salvador, investment solutions director with Z-Ben Advisors in Shanghai.
MSCI is reviewing "A" shares for inclusion again after declining to add them in June due to concerns about liquidity and ownership, CNBC reported in November. The index of 23 countries now covers 837 companies, including Chinese firms that are listed offshore. MSCI, one of the world's most influential builders of indexes, covers multiple markets.