The low level of investor confidence in China to date has been driven by concern over governance and structural issues at Chinese-listed companies.
That explains why it has taken MSCI four years and three failed attempts to finally allow A shares a tiny 0.73% share of the index.
China has upped its game in recent years, thanks largely to the success of the Hong Kong-Shenzhen and Hong Kong-Shanghai Stock Connect exchanges, which opened late last year and in 2014 respectively.
Remy Briand, managing director and chairman of the Index Policy Committee at MSCI, described these a “game changer” for the decision.
Jan Dehn, head of research at Ashmore Group believes negativity towards China is ill-founded because it has for many years had relatively stable growth and inflation rates, a firm commitment to reforms and very little political uncertainty.
He added: “We expect that index inclusion – which implies that investors will now have to take actual positions rather than just pontificate – will force commentators to abandon their often baseless pessimism and outright prejudice about China in favour of more mature, well-grounded views of the country and where it is heading.”
