Today’s decision by the stock index firm MSCI to delay inclusion of Chinese A shares in its emerging market index will only delay the inevitable.
Credit Suisse analysts say it’s a matter of when, and not if, for these domestically traded shares to be included.
“No other economy in our region is undergoing the enormous reform that China is currently pursuing,” write analysts Hasan Tevfik, Peter Liu and Damien Boey.
“Much of this reform is in the financial sector and is set to be recognised by the likes of MSCI and FTSE, the major equity index providers.”
And the analysts say an investable Chinese equity market will marginalise Australia in the region.
China’s local share capitalisation is close to $US6 trillion and the ASX 200 is at $US1.1 trillion.
The analysts forecasts China’s equity market share in Asia, not including Japan, will rise to 30% in 2030 from 7% now while Australia’s will fall to 6% from 14%.
This chart shows Australia’s shrinking share of the regional market:
Back in 1975 the centre-of-gravity for the Asia ex Japan equity region was around Kakadu National Park.
It has since moved north, away from Australia, and is now in the South China Sea.
By 2030 it will move further north, further away from Australia, and be threatening to cross onto the Chinese mainland.
“But it is not all bad news for our market,” Credit Suisse says.
“In fact there will be considerable benefits for Australia Inc with a new, large, pool of potential capital in the region.
“The ever opportunistic Australia Inc. will be delighted with the potential new capital brings.
“There could be dual listings of Australian companies on Chinese bourses. Also, Australian companies will have the option of listing or demerging their Asian assets in China.”
The analysts say Computershare, Macquarie Group and Platinum Asset Management should be long-term beneficiaries from China’s financial sector reform.
The shifting centre of gravity in financial markets: