TWENTY-SIX China A shares will be added to the MSCI China Index, while 30 equities from Saudi Arabia and eight Argentine securities are set to join the MSCI Inc.’s emerging market stocks benchmarks, in steps that could potentially draw billions of dollars of investor inflows.

China A shares will be left with a 1.76 percent weight in the broad developing nation gauge, MSCI said. The China gauge will have 31 additions in total, including five that are not A shares.

MSCI is the world’s biggest index compiler. The stocks are being added at a time when developing nation assets are in the midst of a selloff tied to increased trade tensions, with Chinese shares in particular in the firing line.

Foreigners are dumping mainland-listed shares at a record pace. They took money off the table via the stock connects, selling a net 7.4 billion yuan (US$1.08 billion) worth of A shares yesterday. They have sold more than 20 billion yuan worth of mainland shares through trading links with Hong Kong so far this month, putting May well on track to surpass the 18-billion-yuan outflow in April.

Mainland stocks remain some of the best performing in the world this year, yet about US$1 trillion has been wiped from the country’s equity markets in just three weeks as the trade dispute reignited.

The Shanghai Composite Index has fallen about 6 percent this month and dropped 11 percent from an April peak, yet remains up over 16 percent year-to-date.

MSCI will increase the inclusion factor of large-cap A shares to 10 percent from 5 percent, according to the statement yesterday, though that doesn’t guarantee a boost for the market: the initial inclusion of A shares last year did little to stop the worst rout in a decade. Inflows from index-tracking funds are minor compared to the size of China’s market, which is dominated by retail investors.

Recent volatility in Chinese shares won’t have an impact on MSCI’s plans to raise the weighting of large-caps this year, according to Zhen Wei, director of China research at MSCI Inc. However, it could mean a change in the number of mid-caps that are included in the November review, he said.

“If A shares underperform other emerging markets on relative terms, it will be reflected in market weight,” and vice versa, he said.(SD-Agencies)