MSCI adds China-listed stocks to index in long-awaited move

Global stock benchmark provider MSCI has made a long-awaited decision to add mainland China-listed shares to its widely followed stock indexes.

MSCI said Tuesday that it's including yuan-denominated "A-shares" of 222 large cap Chinese companies to its Emerging Markets Index.

The stocks will be added in a two-step process starting in May 2018 and will represent 0.7 percent of the index.

It's an important step for China's communist leaders, who have been pushing to more closely integrate their country's markets and currency with the global financial system.

MSCI's indexes are closely followed by fund managers and the move could draw more foreign investment to Chinese firms, though analysts said they didn't expect an immediate flood of money because the two-phase implementation is still a year away.

In three previous index reviews, the benchmarker has held off on adding Chinese shares because of worries about limited access for foreign investors to the country's markets. Another turnoff was volatile trading, including a market meltdown in 2015 that led at one point to roughly half of stocks being suspended.

To address those concerns, it's only adding shares available through two cross-border trading links that have opened up since 2014 between Hong Kong's stock market and exchanges in Shanghai and Shenzhen on the mainland. These "Stock Connect" links give foreign investors wider access to the mainland's markets, which are mostly restricted to local investors. Stocks suspended from trading more than 50 days are excluded.

"International investors have embraced the positive changes in the accessibility of the China A-shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion," Managing Director Remy Briand said in a statement. "The expansion of Stock Connect has been a game change for the market opening of China A-shares."

MSCI said more China-listed shares could be added in the future if the country loosens restrictions further.

The company's global stock indexes are the basis for exchange-traded funds and used by professional investors to track their performance. The Emerging Markets Index covers 830 companies in 23 countries, with Chinese companies traded overseas already accounting for the biggest share at 28 percent through Hong Kong-listed stocks such as PetroChina and New York-traded shares like Alibaba.

The Chinese securities regulator welcomed the decision and indicated mainland markets would open wider to foreign investors but gave no details or time frame.

"We are happy to see it," Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, said in a statement on the agency's website. The change is "both an opportunity and a challenge," said Zhang, adding that the CSRC would help develop more ways for foreigners to invest in A-shares but giving no details.