Investors skittish as oil enters bear territory; eyes on China stocks

Investors skittish as oil enters bear territory; eyes on China stocks

Investors skittish as oil enters bear territory; eyes on China stocks

Index provider MSCI on Tuesday chose to include mainland China stocks, or A-shares, in its global emerging-market benchmark index.

Since MSCI delayed the inclusion of China A-shares for the third time in 2016, Chinese authorities have taken several measures to ease worldwide investors' concerns over the A-share market's accessibility: arbitrary trading suspensions were better regulated, restrictions on qualified foreign institutional investors were further relaxed, while the Shenzhen-Hong Kong stock connect scheme was launched to broaden channels of foreign investment in the A-share market.

Yeom Dong-chan, an analyst with eBEST Investment and Securities, said the portion of Korean stocks in the widely tracked MSCI Emerging Markets Index would fall if China's mainland stocks join up.

Nigeria's currency peg between 2015 and 2016 led to the country's delisting from two major indexes for emerging and frontier markets during the period.

They got close a year ago, but after a couple of big stockmarket sell offs and the involvement of the Chinese government in market support measures (some would call it market manipulation and other fears about corporate governance), MSCI said no.

China will need to keep working on making its financial markets more open and that includes giving more access to foreign investors and addressing fears over capital controls. When the market is riding high and there is generally smooth sailing on the investing seas, individual investors may have the tendency to get complacent.

China A shares will also have a presence on the MSCI ACWI Index, and MSCI said it will begin calculating a number of global and regional provisional indexes created to help manage the implementation of the shares in investors' portfolios. "BlackRock has continued to support all opening of investment in China's onshore capital markets for a number of years", Ryan Stork, BlackRock chairman, Asia Pacific, said in a statement.

Fund managers and index providers will have 12 months to adjust their portfolios, and with only $2 billion of inflows into China as a result of the changes the adjustments will be "minimal", Ms McNaughton said.

For many investors, China's local shares represent the future.

Until now, it's been an easy decision for global fund managers to avoid Chinese shares but it's now more of a bet if they decide not to invest. Trillions more of investor dollars are tied to additional MSCI global indexes.

"However, the index provider is taking a gradual approach to including Chinese A-shares, perhaps reflecting persistent concerns over structural issues".

Brent crude was off by 0.04 percent at $46.00 and U.S. WTI crude gained 0.05 percent to trade at $43.53.

Switzerland, which has one-tenth the GDP of China, has a 50 percent larger weight in investors' portfolios today, and that makes no sense.

Inclusion in MSCI indexes will spur about US$8 billion to US$10 billion more in fund flows to China's A shares, according to Lucy Qiu, an analyst at UBS Wealth Management's Chief Investment Office, which oversees strategy for US$2.2 trillion in assets. MSCI's decision has been closely watched as a sign of China's growing importance on worldwide financial markets. This slide had a contagion effect as the S&P 500 index saw broad declines on Tuesday.

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