MSCI’s China Index Proposal May Lure $4 Billion to Shares

MSCI Inc.’s proposal to include China’s mainland-traded shares in its emerging-market indexes may lure $4.4 billion in funds, with China Merchants Bank Co. and Agricultural Bank of China Ltd. among the top beneficiaries.

The estimate of inflows into China’s so-called A shares by analysts at Goldman Sachs Group Inc. compares with the $52 billion of approved quotas through China’s Qualified Foreign Institutional Investors program. China Merchants Bank, AgBank and Ping An Insurance Group Co. would probably receive the most inflows under MSCI’s proposal, Societe Generale SA wrote in a report dated yesterday.

MSCI is consulting with investors, who use the company’s indexes to measure performance, on the plan as China takes steps to open up its $3.2 trillion stock market to foreign money managers. While Goldman Sachs predicted the short-term impact will be limited because the potential inflows are small relative to the size of China’s market and may not take effect until May 2015, the bank said it’s a positive step toward making the shares more accessible to global investors.

The plan is “a nice sentiment kicker,” Gavin Parry, managing director of brokerage Parry International Trading Ltd. in Hong Kong, said in an e-mail.

The China Securities Regulatory Commission has expanded foreign investor quotas, cut trading fees and pushed companies to increase dividends in a bid to revive demand for stocks after the Shanghai Composite Index dropped 33 percent in the past four years. CSRC Chairman Xiao Gang said on March 11 the country plans to expand the QFII program this year.

The Shanghai Composite rose 1.2 percent at 1:05 p.m. local time, paring this year’s decline to 4.4 percent. China Merchants increased 1.3 percent, while AgBank gained 3.1 percent and Ping An rose 1.9 percent.

MSCI will include the A-shares proposal in its 2014 review of market classifications, to be announced in June, the company said in a statement on March 11. China’s market capitalization ranks fifth worldwide after the U.S., Japan, the U.K. and Hong Kong.

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