MSCI mulls lifting China stock weighting, adding ChiNext

A trader walks past the board while working on the floor of the New York Stock Exchange in New York, U.S., on Tuesday, May 25, 2010. Stocks plunged from Tokyo to London and New York, dragging the MSCI World Index to a nine-month low, and commodities slid as concern grew that SpainÕs ailing banks signal a widening debt crisis and as tension mounted on the Korean peninsula. The German bund yield fell to its lowest since at least 1990. Photographer: Jin Lee/Bloomberg

By BLOOMBERG

SYDNEY • MSCI Inc is considering significantly increasing the weight of China A shares in its global indexes from next year, as well as allowing in a raft of smaller tech stocks.

The index compiler is proposing to lift a cap on free-float-adjusted market value to 20% from 5% for mainland stocks, according to a statement. That would occur in two stages in 2019. MSCI’s also looking to make equities listed on the tech-heavy ChiNext board eligible for inclusion from next year, and mid-cap stocks from 2020, it said.

The reaction in early trading yesterday was relatively muted, with the large-cap CSI 300 Index rising 0.4% and the ChiNext Index little changed.

“We knew a consultation was coming, though it is a big jump in the inclusion amount in 2019,” said Brendan Ahern, CIO at Krane Funds Advisors. “It is an indication the pace of inclusion is faster than the market had anticipated.”

China A shares won entry to the MSCI indexes in June last year and were added to gauges in May and August. FTSE Russell will announce plans to include the stocks in its own measures today, Beijing time, according to people familiar with the matter.

The Shanghai Composite Index has fallen 16% this year, among the worst performers worldwide, amid a trade dispute with the US and slowing economic growth.

MSCI is seeking feedback from investors by mid-February and will announce its final decision at the end of that month.