IShares MSCI Emerging Markets Indx Target of Unusually High Options Trading (EEM)

Posted June 24, 2017

Analysts said MSCI's move is a pivotal moment for global investment in China's capital markets.

"We applaud and appreciate MSCI for making such a decision", said Zhang Xiaojun, spokesman for the China Securities Regulatory Commission.

"Given the size and importance of China as an economic superpower, I think this is a historic moment", Kevin Anderson, senior managing director of State Street Global Advisors and head of investments in the Asia Pacific region told Reuters.

Over the past decade, China has been slowly but gradually opening up its capital markets. Both sides - MSCI and China - made considerable efforts to make the inclusion possible.

The blue-chip CSI 300 index rose 0.1 percent to 3,590.34 points, while the Shanghai Composite Index lost 0.3 percent to 3,147.45 points.

The decision, announced by the New York-based index compiler on Tuesday, will give China's US$6.9 trillion (S$9.6 trillion) stock market a bigger role in everything from exchange-traded funds to 401 (k) retirement plans. For equities, Hyat says PGIM often looks to American Depository Receipts (ADRs) or companies with Hong Kong listings.

China's domestic equities will join MSCI's benchmark indexes, a landmark step in the nation's integration with the global financial system.

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MSCI says its emerging markets index is tracked by more than US$1.5 trillion in assets, adding that Chinese representation in the index could be increased in time if it enacts additional reforms.

Looking beyond the potential benefits of increased demand for China A-shares ahead of the major index changes, Chinese markets exhibit strong macro fundamentals.

"Compared with the A-shares average daily turnover of $65 billion, this is also not significant", Huang added.

"As it now stands, Chinese equities are not unattractive from a valuation (Shanghai trades at 16 times PE) and earnings growth perspective. It's very hard for us to articulate any type of timeline with respect to further inclusion", Lieblich told reporters.

"These companies have the highest proportion of passive-index focused investors on their registry and these are the stocks that are likely to see the most selling as the global and regional passive funds re-allocate to the A-Shares". The ability to communicate with foreign investors, even in companies with worldwide operations, tends to be less than world class.

Hong Kong shares in Shanghai Electric, one of the largest equipment manufacturing conglomerates in China, dropped more than 2 percent after denying media reports that Tesla had signed a joint venture agreement with it. "All the problems that people complain about, including a lack of transparency and corporate governance, all create investment opportunities", said Qi Wang, a former MSCI executive director and now chief executive for asset manager MegaTrust Investments.

Failing to upgrade Argentina means the country remains in MSCI's smaller frontier markets index, where it has been since 2009.