China Stocks Pace Gains in Asia Before MSCI A-Share Decision

Asian Markets Risk Appetite Improved on June 19

MSCI rejected the first three tries due to "accessibility" issues for foreign investors in China's stock markets, though MSCI rival indexing giant FTSE chose to include A-shares in its EM indexes in 2015.

Julian Mayo, co-CIO of emerging market specialist Charlemagne Capital, said: "There is increased expectation the MSCI will include A-shares, the question is when?"

The big news: MSCI is adding more locally-traded China large-cap stocks to its emerging market index than expected.

The stocks will represent on a pro forma basis approximately 0.73% of the weight of the index, according to MSCI. The move will pressure markets, especially those with exposure to China, such as Australia, but the gradualness of the move should prevent any wild swings. Ultimately it means there's going to be more China in investors' portfolios.

MSCI announced its rejiggers of stock indexes after the close, and said Argentina will remain in its frontier market category, though the Latin American country with a new and market-friendly president was considered for a lift to emerging status.

A renewed slump in oil prices to seven-month lows put Asian investors on edge on Wednesday, overshadowing a decision by us index provider MSCI to add mainland Chinese stocks to one of its popular benchmarks.

Iran's Revolutionary Guard strikes Syria for Tehran attacks
It did not immediately offer other specifics, other than to say the missiles were launched from Iran. Deir el-Zour is home to both Islamic State militants and civilians.

"Even though the Federal Reserve is about to shrink its balance sheet, possibly as soon as in September, U.S. bond yields are kept at low levels, which are very comfortable for stocks", said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities. In the end of May, Moody's Investors Service downgraded China's credit, and the China market responded with anger and immediate rebuttal.

Most sectors lost ground, led by the defensive consumer and healthcare stocks. We hope that the MSCI decision will spur domestic regulators to bring China's stock markets in line with global norms and make the regulatory environment more predictable, improve transparency in the stock market listing process, and bring stronger rule of law to the wider securities industry.

The MSCI inclusion "will provide a modest boost to sentiment and flows into China", said David Loevinger, a former China specialist at the U.S. Treasury who is now an analyst at fund manager TCW Group Inc.in Los Angeles.

As crude oil prices declined this year, the Tadawul gauge has dropped, lagging behind an average of peers as measured by the MSCI Emerging Markets Index, which increased 17 percent through June 19.

These included the removal of the 20% Qualified Foreign Institutional Investors (QFII) monthly repatriation restriction, implementation of new trading suspension treatment as well as resolution of pre-approval requirements by the local exchanges on launching financial products. "Hence we think the market impact would be limited". A similar Shanghai-Hong Kong stock-trading link opened up in late 2014.

Chinese stocks dipped 0.2 percent overnight in Asia, but have risen more than 7 percent over the last month as the MSCI expectations have added to a growing sense that US trade war risks have receded. It now only includes shares of Chinese companies listed in Hong Kong or the US.

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