GLOBAL index provider MSCI expects a proposed quadrupling of the weighting of Chinese mainland stocks in its global benchmarks by 2019 could draw more than US$80 billion of new foreign investment into the world’s second-largest economy.

In September, MSCI launched a consultation to further increase the weighting of Chinese large-cap securities to 20 percent from the current 5 percent in two steps, in May 2019 and August 2019.

MSCI had initially estimated the change would rake in US$66 billion, but flows had beat predictions, said Chia Chin-ping, MSCI’s head of research for Asia Pacific.

“What has gone in so far has been much higher than expected,” Chia said on the sidelines of investor meetings, adding some 15-20 percent of flows were made up of passive money tracking its indexes.

Chia added a possible 20-percent weighting reflected the level MSCI felt comfortable with, given the current restrictions on foreign investors putting their money to work in Chinese stocks.

“The market needs to continue to open up and raise the accessibility level,” he said.

Developing equities have been on a roller coaster ride this year, with MSCI’s emerging market benchmark having tumbled more than a fifth from its January peak. In October alone, the index fell nearly 9 percent — its biggest monthly drop in more than two years.

Chia said he expected the recent turmoil to be felt at the semi-annual index review due Nov 13. “There will be (an impact),” he said, though declined to give details.

MSCI Inc. said in September it was considering significantly increasing the weight of Shanghai and Shenzhen-listed A shares in its global indexes from next year, as well as allowing in a raft of smaller tech stocks.

China’s A shares won entry to the MSCI indexes in June last year and were added to gauges in May and August. MSCI has included about 230 Chinese big-cap stocks in its flagship indexes with an initial inclusion factor of 5 percent.

MSCI also proposed to add ChiNext shares to the list of eligible segments for inclusion starting from the May 2019 Semi-Annual Index Review.

MSCI also considers adding Chinese mid-caps with a 20-percent inclusion factor in one phase as part of the May 2020 Semi-Annual Index Review.

(SD-Agencies)