Investors’ money flowed to China after the inclusion of stocks in MSCI Emerging Markets

A record amount of money poured into China’s financial markets in 2018 — and analysts say that figure will likely increase as closely followed indexes raise their weightings for Chinese assets. China’s bond and stock markets experienced inflows of $120 billion last year and that amount could reach $200 billion this year, boosted by the inclusion of Chinese assets in benchmark indexes, according to a report by Citi.

“Inflows from bonds and equities are likely to continue supporting China’s (balance of payments),” the U.S. bank said in its Jan. 31 report. While financial markets in China remain highly regulated compared to those of advanced economies, the door has been gradually opening and investors are keen to get in as opportunities increase.

Chinese A-shares — or yuan-denominated stocks traded on the mainland — were included in the MSCI Emerging Markets Index for the first time last year, allowing investors to access the Chinese equity market more easily. Now, MSCI is considering whether to further increase the weighting of A-shares in its indexes, and could announce its decision by the end of this month.

While Chinese authorities have kept a lid on what they consider potentially destabilizing capital outflows, they largely welcome inflows, which have increased following various arrangements that allow foreign investors to buy domestic stocks and bonds through Hong Kong. The possibility of reduced trade tensions between the United States and China could also improve investor sentiment as uncertainties surrounding Chinese investments ease, Ronald Wan, non-executive chairman at Partners Financial Holdings in Hong Kong, told CNBC on Thursday. Many index funds, mutual funds and exchange-traded funds (ETFs) are directly benchmarked against MSCI indexes such as the Emerging Markets ETF and the iShares MSCI All World ETF.

All signs point to more money pouring into Chinese markets this year, CNBC, Feb 15