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What next after MSCI inclusion?

Wealth and asset managers give their views on the implications of the MSCI inclusion of A-shares and where they find investment opportunities onshore.
by Fund Selector Asia
Australian bank

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“[T]o put it in perspective, the $12bn in estimated inflows from inclusion is less than half of the $27bn in net capital outflows China experienced in the month of May,” Raymond Yeung, Greater China chief economist at ANZ Bank, wrote in a research note.

However, the announcement has other implications. He believes the next step could be the inclusion of Chinese government bonds onto Citi’s World Government Bond Index (WGBI) in 2018, he said.

An estimated $4trn of assets are tracking the WGBI. In March, Citi introduced a parallel index to WGBI that includes China, Korea and Israel.

“The continued opening up of China’s onshore financial markets and increased foreign investor participation means China will be incentivised to further improve its regulatory transparency and oversight. The more progress that Chinese regulators make on liberalisation, the greater the potential for further inclusion.

“Following last year’s RMB inclusion in the International Monetary Fund’s Special Drawing Rights (SDR) basket, and now with China A-share inclusion in the MSCI EM Index, the next natural progression will be the inclusion of China’s onshore bond market in the global bond market indices.”

Yeung expected the the potential inflows into China from bond inclusion could be as much as $100bn, based on WGBI inclusion.

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