The global index compiler MSCI has increased the weighting of China A-shares in certain indexes by raising the inclusion factor to 20 percent from 15 percent. /VCG Photo
Editor’s Note: The following article is taken from the Chinese-language “Commentaries on International Affairs.” The article does not necessarily reflect the views of CGTN.
After the closing of China’s A-shares market on Tuesday, the largest A-share expansion this year for the global equity index provider MSCI took effect. In addition to the MSCI, the S&P Dow Jones Indices has included China A-shares in the S&P Emerging Markets Global Benchmark Index. Moreover, the inclusion factor of A-shares in the FTSE Russell has reached 15 percent.
This shows that China’s capital market has achieved remarkable results in its efforts to open to the world. It also shows the growing confidence of global investors in China’s capital market.
The inclusion of A-shares in major indexes, and increases in the inclusion ratio of these shares, encourage funds that passively track the three major indexes to buy A-shares directly. This will lead to more funds flowing into A-shares, and some institutions predict that the expansion of the MSCI may alone bring some 43 billion yuan (6.12 billion U.S. dollars) of passive incremental funds into A shares.
Foreign investors continue to be optimistic about China’s capital market, mainly due to the attractive valuations of A-shares and the continuing expansion and opening up of China’s financial markets. On the one hand, the current valuation of RMB assets is still low but they are becoming increasingly stable investments.
On the other hand, measures such as China’s pledges to continue to expand the opening of the capital market, relax the entry of foreign investment into the securities investment fund custody business, and expand the range of futures products, have begun to be implemented.
Furthermore, the Shanghai-London Stock Connect and China-Japan ETF Connectivity scheme have both been launched, China plans to lift restrictions on the share ownership ratio for foreign financial institutions, and links between the domestic and global capital markets have strengthened.
This allows more international capital to seek out investment opportunities. According to figures from China’s Securities Regulatory Commission, more than 240 billion yuan of foreign capital has flowed into the country’s stock market this year.
Behind the increase in investment in China’s capital market are the optimistic expectations of global investors regarding China’s macro economy. In the first three quarters of this year, China’s GDP grew by 6.2 percent year-on-year, ranking it among the top performers of the world’s major economies, and its major macroeconomic indicators have stayed within a reasonable range.
At the same time, China’s economy has turned towards high-quality development and its structure has been continuously optimized. The fundamentals of China’s long-term economic improvement have not changed. Howard Marks, the founder of Oaktree Capital Management, recently said that he believes China will maintain its strong growth in the coming decades and has told investors to make major investments in China.
This year, the Organization for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) repeatedly lowered their expectations for global economic growth for this year and next year. It is believed that a more open, stable, and internationalized capital market in China will provide more space for global investors, and will continue to inject momentum and vitality into global economic development.