Vote of confidence for China's stock market: BlackRock wants to include mainland shares in benchmarks – MarketWatch

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Big fund managers are for the first time dropping opposition to including domestic Chinese equities in key global indexes, a sign that the mainland’s huge stock markets may finally be coming of age.

BlackRock Inc. BLK, -0.16%  , the world’s largest asset manager, said Thursday that it supports including mainland shares in the benchmarks of MSCI Inc. MSCI, +0.51%  , whose indexes are used by global money managers to guide trillions of dollars in investments. Deutsche Asset Management, one of the world’s biggest managers of exchange-traded funds, also said that from the ETF perspective there are no more technical problems with including China’s domestic equities, known as A-shares, in MSCI indexes.

Other fund managers such as UBS Asset Management, Fidelity International and Matthews Asia, said they think inclusion is becoming more likely.

MSCI, which typically tweaks its indexes each year around June, declined to comment.

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For years, China seemed to defy the “trilemma,” an economic theory that a country can’t at the same time have a controlled exchange rate, free flow of capital and an independent monetary policy. Now Beijing is betting big on defending the yuan. Photo: Qilai Shen/Bloomberg News

Inclusion of A-shares in MSCI indexes could be a watershed for China’s $7.82 trillion in domestic equities, the world’s second-biggest pool after the U.S. China’s markets have slowly opened to foreign investors. In previous years MSCI has said the markets weren’t accessible or transparent enough to warrant inclusion of mainland stocks in its benchmarks. Only Chinese companies listed offshore in places such as Hong Kong and New York are included in MSCI indexes.

The inclusion of A-shares would mean that the many global fund managers, including pension funds and insurers, that invest based on MSCI indexes would have to add mainland equities to their portfolios. Funds that compare their performance to that of an MSCI index that included Chinese stocks would likely buy those shares as well.

MSCI’s Emerging Markets Index, for instance, is the most widely tracked benchmark of performance of stocks in the developing world and is followed by money managers with $1.6 trillion in assets.

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