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China should seize on MSCI entry to overhaul its markets

Reform of IPO process and rules key to boosting foreign interest

| China
High-tech initial public offerings like that of Foxconn Industrial Internet and the addition of domestic stocks to MSCI's global index will bring more foreign investors into Chinese equities.   © Reuters

Chinese domestic stocks are set to go mainstream on June 1 for fund managers around the world. That is when 234 Chinese domestic stocks will join the MSCI Emerging Markets Index, coinciding with a push by Beijing to smooth the way for high-flying technology companies, which in the past have flocked to New York and Hong Kong, to list on the mainland's stock exchanges.

No fund manager has been able to avoid the China story as the country's rise has affected all areas of the global economy. But this first round of domestic Chinese stock additions to the MSCI will compel institutional investors controlling the estimated $1.7 trillion in funds that track the company's Emerging Markets Index -- or which are benchmarked against it -- to buy such shares for the first time. They will be pushed to buy more in September when MSCI raises the weighting of these shares in the index from 2.5% of their free float to 5%.

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