Business and Economics

Chinese securities will now be included in global indexes 6-24-17

Sources: "Financial assets, made in China"

After years of having very little connection to the wider world of financial markets, Chinese stocks and binds are being included in global indices, meaning that events in the Chinese economy will be felt around the world. Or put another way, a Chinese recession in the future will have a greater impact on the world economy than it does today.

From the article: "One kind of Chinese good few abroad dare touch: its financial assets. Outsiders own less than 2% of its shares and bonds, far below the levels of foreign ownership seen in other markets. Capital barriers and financial risks have put investors off. This, however, is changing. The globalisation of China’s capital markets is slowly gathering steam, as symbolised by the inclusion of Chinese stocks and bonds in global indices. MSCI, a company that designs stockmarket indices, announced on June 20th that it will bring Chinese equities into two of its benchmarks: one that covers emerging markets; and another that follows stocks around the world. To begin, it will include a small number of shares, just 222 of the more than 3,000 listed in China. But its decision matters to asset managers who track their performance against MSCI’s indices or who invest in exchange-traded funds linked to them. They will in effect be forced to allocate capital to China’s stockmarkets, many for the first time. Because MSCI is giving Chinese stocks a limited weighting (0.73% of its emerging-markets index), the resulting cash inflows could add up to only about $10bn next year, equivalent to less than one hour of trading in China’s frenetic markets. Yet the weighting is likely to increase in the coming years."