On June 1, the inclusion of A-shares in the MSCI Emerging Markets Index will officially take effect. MSCI will include 233 A-shares in the MSCI Emerging Market Index on June 1, with the initial inclusion ratio of 2.5%, and another 2.5% will be included at the end of August.

A shares entered the countdown moment.

A shares "enter the motorcycle market" countdown

According to the "two-step" process, MSCI will include 233 A shares in the MSCI emerging market index on June 1, with the initial inclusion ratio of 2.5%, and another 2.5% will be included at the end of August.

MSCI Managing Director Xie Zhenggui said that with the initial inclusion of A-shares, China's weight in MSCI emerging markets will rise by 0.8% to 31.3% (calculated based on current market value). If China continues to open up its stock market and allow China's A-shares to be fully included, Chinese stocks will account for about 42% of the emerging market index, while A-shares will account for about 16% of the weight.

Goldman Sachs reported that, referring to the experience of other emerging markets, it will take about 10 to 20 years for A-shares to increase the inclusion ratio to 100%.

Since the decision to be included in June last year, the list of stocks in the A-share market index has been changing.

Earlier this year, on March 28, MSCI Asia Pacific Executive Director and Head of China Research Department Wei Zhen said that according to data in early March, it has become 236 large-cap A-shares, and the process of inclusion remains unchanged. In June last year, MSCI originally planned to join 222 large-cap stocks.

Judging from the 233 constituent stocks finalized, overseas funds prefer large-cap stocks such as big finance and big consumption. According to the number of targets in the industry, there are 50 targets in the financial and pharmaceutical industries (including 20 banks and 30 non-bank finance) and 18 targets respectively.

Xingshi Investment compared the newly added targets and the removed targets, and there was a significant difference in the market value scale between the two. Judging from the closing price on May 14, the average market value of the 11 new targets was 50.2 billion yuan, with a median of 49 billion yuan; the average market value of the 12 excluded targets was 33.5 billion yuan, with a median of 21 billion yuan. Xingshi Investment believes that this reflects overseas funds' preference for scale and liquidity.

Fund layout Racing

How much incremental funds will this time be brought to A-shares?

According to calculations by all parties, this data will be RMB 121.5 billion. Foreign funds of hundreds of billions of dollars will enter the market in batches in June and September this year, and about 60 billion yuan of funds are expected to flow into the A-shares respectively.

Signs of foreign capital increasing allocation of A-shares have been highlighted. Judging from the shareholding data of the Mainland Stock Connect, overseas investors have made advance arrangements for MSCI components.

According to statistics, since it was announced to be included in MSCI in June 2017, a total of 206.208 billion yuan of northbound funds in Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect. At the same time, with the huge inflow of northbound funds, in the second half of last year, MSCI components such as Kweichow Moutai and Gree Electric showed a strong upward trend. In March and April this year, the trend of a significant increase in northbound funds was particularly obvious, and it turned into a positive net purchase. The last time the same situation occurred was dated back to May and June 2015, when A-shares were in an accelerated period of rise.

Since the announcement of A-shares being included in MSCI in 2017, more than 20 domestic public funds have established MSCI theme funds .

Among them, nearly 18 were established this year. Before 2018, there were only two Huaan MSCI China A-shares and Huaxia MSCI China A-shares ETF in the domestic market. However, in April and May this year, MSCI theme funds were intensively released and established. The most recent one is E Fund MSCI China A-share International ETF, which was officially established on May 18. Although

is accelerating the configuration of MSCI themes, domestic and foreign investors have different expectations.

Xu Peidong, senior strategy analyst at Bank of China International, told Interface News reporters that domestic investors are more concerned about the returns (relative returns) of the MSCI China Onshore Index relative to the market. For example, if a domestic fund configures a combination of weights according to the MSCI target, how much can it outperform compared with the Shanghai and Shenzhen 300 index? Foreign investors are more concerned about the absolute return opportunities of certain targets in the index target pool. This difference mainly comes from the difference in the familiarity between the two types of investors with A-shares and the differences in the performance evaluation standards of their respective mainstream institutions.

In addition, foreign investors pay more attention to A-share investment in Motorcycles than domestic investors."This time, the amount of funds of 120 billion yuan is relatively small for domestic institutions, but it is about one-tenth of the current A-share holdings of foreign capital." Xu Peidong analyzed.

Bull market is just around the corner? How much boost will the inclusion of

MSCI have on the A-share market trend and related stocks?

has a more consensus view that "entering Mozambique" is more symbolic than reality, and a limited amount of funds may be difficult to significantly boost overall market sentiment. In the view of many analysts, short-term foreign capital inflows have a boost to the sentiment of the A-share market, but the medium- and long-term market style still depends on the fundamentals of China's economy.

"A-shares have fallen a lot after January this year, and are impacted by various market-influence factors. In the past two or three months, A-shares have shown a weak performance in the index. The overall amount of capital inflows into the MFC is limited, and the positive impact is more inclined to the news." Gao Ting, chief strategy analyst of UBS Securities, told Interface News.

In the first half of 2018, A-shares entered a bull market in January. The Shanghai Composite Index closed at the highest of around 3558 points at the end of January. In February, it was affected by the sharp drop in US stocks and other external markets, and experienced a sharp pullback. In the following months, affected by various factors, the Shanghai Composite Index has been fluctuating at a low level around 3100 points.

From the perspective of funding trend, passive index funds need to allocate funds to the 233 stocks entering the motorcycle market according to their weight. Therefore, the 100 billion incremental funds brought by them have little impact on the stock prices of these large-cap stocks.

According to preliminary estimates by BOCI, among the individual stocks included this time, the largest amount of funds inflows was Ping An of China (601318.SH), with inflows of 3.917 billion yuan; followed by China Merchants Bank (600036, SH), with inflows of 2.554 billion yuan; third is Kweichow Moutai (600519, SH), with inflows of 2.228 billion yuan; the remaining more than 200 stocks are below single digits, and most of them are inflows of only a few tens of millions of yuan on average.

Xu Peidong said that most of the targets included in this time are A-share large-cap stocks, and for their total market value, MSCI's new allocation funds account for a small proportion. There is another observation point. Some targets have a large gap in net inflows through Shanghai and Shenzhen Stock Connect this year and have a large gap in standard allocation. You can pay attention to this type of stock from the perspective of fund allocation.

Starstone Investment CEO Yang Ling told Interface News reporters that overseas funds have certain voting rights for market style preferences, and medium- and long-term international inflows can also play a role in reshaping investor behavior.

Although joining MSCI has limited short-term impact on the market, the medium- and long-term impact is likely to exceed market expectations.

Xu Peidong told Interface News reporters that for A-shares, capital inflows are second to the time. The most meaningful thing is the internationalization of the market to promote the healthy development of A-share investment culture. The long-term potential impact is that the overall valuation of A-shares will return to a reasonable return; although due to the cultural and national character of East Asia, the proportion of retail investors in A-shares will not be as low as that in the United States in the future. However, the proportion of individual investors will still decline, while the proportion of institutional investors will increase; in addition, entering the MFC will also reduce the volatility of A-shares, which are some aspects that need to be changed urgently in the future to mature markets.

Anxin Securities analyst Chen Guoze believes that in the longer term, we need not only pay attention to the current constituent stocks included in the index, but also see the future trend of index constituent stocks. Pay attention to the MSCI adjustment ratio in August in advance. According to experience, when adjusting the ratio, growth industries often receive more attention.

Five years of hard work to pass the level

A shares have a history of several years. From the first application in June 2013, after several twists and turns, until June 2017, A-shares were finally agreed to be included.

Since June 2013, MSCI has initiated the review of the possibility of A-shares being included in the MSCI Emerging Market Index. At that time, Chinese regulators began to try to further open up domestic financial markets to alleviate investors' concerns about capital liquidity.

However, before the launch of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, the restrictions on investment quota and funds remittance have always been the basic obstacles to entry into the Motorcycle Corporation. The sharp decline in A-shares in 2015, the temporary introduction of circuit breakers and other mechanisms, as well as the phenomenon of "suspension of thousands of shares" have also made overseas investors more worried.

MSCI side said that although the Chinese market is special, MSCI uses the same set of standards for China and other emerging markets around the world. The particularity of China will not be considered in particular.

China has continuously relaxed various restrictions during the application process to meet the requirements of MSCI.

In February 2016, the "Regulations on Foreign Exchange Management of Domestic Securities Investment by Qualified Overseas Institutional Investors" issued by the China Foreign Exchange Bureau clearly stated that the basic QFII quota is calculated at a certain proportion of AUM, and open-end funds are allowed to remit funds on a daily basis, which partially resolves concerns about quota allocation and capital flow restrictions.

In the same year, the China Securities Regulatory Commission issued statements many times, clarifying the issue of ownership of rights. Recognize the nominal holder system under the Shanghai-Hong Kong Stock Connect to ensure that overseas investors enjoy the rights and interests of Shanghai-Hong Kong Stock Connect stocks through the Hong Kong Central Clearing Company.

In May 2016, the Shanghai and Shenzhen Stock Exchanges issued guidelines on the suspension and resumption of trading of listed companies, clarifying the maximum suspension time for related major matters.

After the official launch of the Shenzhen-Hong Kong Stock Connect in December 2016, international investors can now directly trade about 1,480 Shenzhen or Shanghai stocks stocks without being restricted by licenses and quotas, as well as capital flows. This is the main factor that makes MSCI in the A-share market.

In June 2017, A-shares were finally announced to be included in MSCI. After the announcement of this result, the CSRC stated that China's capital market will surely welcome overseas investors with a more open attitude.

. The CSRC has two bottom lines in the negotiation process with MSCI. First, the introduction of derivatives cannot affect the A-share market; and, important derivative liquidity must remain in China and require approval from Chinese regulatory authorities.

With the adjustment of QFII quota and the expansion of the Shanghai-Shenzhen-Hong Kong Stock Connect quota, the proportion of A-shares inclusion is expected to gradually increase in the next few years, which will in turn affect the asset allocation of global funds.

In the view of all parties, the internationalization of the A-share market is an important part of China's capital account opening up to the outside world. In the long run, it plays an important role in promoting the internationalization of the RMB and improving its international status.

For the capital market, the inclusion of A-shares into MSCI will bring inflows of foreign capital. The opening of capital projects is a long-term process, which will not happen overnight, but the trend has been formed, and the A-share market is facing the opportunities and challenges brought about by foreign capital entry with an open mind.