Date
23 January 2017
CITIC Securities chief economist Peng Wensheng said fund flows into China's capital markets after the MSCI inclusion will also depend on the valuation of A shares. Photo: EJ Insight
CITIC Securities chief economist Peng Wensheng said fund flows into China's capital markets after the MSCI inclusion will also depend on the valuation of A shares. Photo: EJ Insight

A shares’ inclusion in MSCI index seen unlikely this year

China A shares are unlikely to be included in the MSCI Emerging Markets Index this year, the chief economist of CITIC Securities said on Tuesday.

The leading index provider will release the results of its Annual Market Classification Review on Wednesday morning.

“I think that the chance of A shares being included in the MSCI index this year is small,” said Peng Wensheng, global chief economist and head of research at CITIC Securities.

A shares will have a better chance of being included in the index next year, after the launch of the Shenzhen-Hong Kong Stock Connect and relaxation of the quota for the Qualified Domestic Institutional Investor scheme, he said.

The inclusion is expected to attract as much as 1 billion yuan (US$161 million) of fund flows into the A-share market as a lot of global fund houses are tracking the index.

Peng said the fund flows into China’s capital markets will also depend on the valuation of A shares at the time of the inclusion.

The higher the valuation, the lower will be the allocation of global funds on A shares, he said.

Peng also said the long-anticipated rate hike by the US Federal Reserve, once it finally takes place, may result in a correction in the A-share market as a stronger US dollar will trigger capital outflow from the country.

But the A-share market will remain bullish and its capitalization as a proportion of the country’s GDP has yet to reach the level seen in 2007, he said.

On the Chinese economy, Peng said the country’s GDP deflator – a measure of the price level of all new and domestically produced goods in an economy – has been negative in the first quarter, which means that the deflationary pressure will heighten if the figure continues to be negative this quarter.

He also expects China’s central bank to lower the interest rate by another 25 basis points this year to shore up the economy.

It is also likely to lower the reserve requirement ratio for banks at least twice more this year according to the funds outstanding for foreign exchange, Peng added.

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JH/JP/CG

EJ Insight reporter

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