MSCI weighs adding mainland China stocks to its emerging markets index

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    China is the elephant in the stock index market: Huge, impossible to ignore. And it’s problems are well known, including corruption and wild price swings.

    Is China ready for the prime time world of indexes? MSCI Inc. is debating whether to include shares from Shanghai and Shenzen, yuan-denominated stocks known as A-Shares, into its emerging market index, reports the Wall Street Journal.

    If the A-Shares get added, then managers globally will need to slap into action to add shares or risk underperforming.

    If MSCI chooses not to add A-shares to the index, it would be a slap to Chinese efforts to open up its markets and expand the demand for the yuan. China has attempted to deregulate its market, but it remain difficult for foreigners to navigate. Writes the Wall Street Journal:

    “It’s significant in terms of how people forecast the future,” said George Hoguet, global investment strategist at State Street Global Advisors, which manages $2.4 trillion in assets. He said the chances are low that MSCI would add A-shares to the index in June.

    As it stands, the MSCI All Countries World Index China has a weight of merely 2.7%, while its economy is 15% of global GDP. The MSCI emerging market index has a 25.7% China allocation, but is primarily made up of Hong Kong-listed companies.

    Photo: Kevin Dooley via Flickr.