230 Chinese companies’ stocks will be added to a major benchmark of emerging market (EM) shares – opening up the world’s second biggest stock market to many more global investors.
MSCI – a company that groups stocks into certain “baskets” (a.k.a. indices) for investors – will include Chinese stocks in its lists, recognizing the steps the country’s taken to become more open to foreign investors.
It needs to be easy for investors to buy and sell stocks in the companies added, so many of them are “blue chips” – China’s largest companies.
“This is a really important event that could change the face of EM investing,” Sebastien Lieblich, global head of index management research for MSCI, said in a call with media Thursday morning New York time.
By being added to these investment lists, some investors are obliged to buy shares, which could result in up to $10 billion being invested in Chinese equity markets.
What Is An Emerging Market Economy?
The best way to think about it is to think about all the “developed markets” like the US, Japan, Europe and some others. These tend to be the largest economies in the world and the most advanced. Emerging markets are, essentially, less advanced. In the case of India and China, they can be quite large, but are still “developing.”
Emerging markets often exhibit higher growth rates than developed economies, often because they are starting from a lower base (like a startup company, it’s easier to grow than a large, established company). But they also have higher risk. That can be due to political risk (think coups) as well as economic risks (like a lot of foreign investors might take their money out).