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Aug. 31 (NBD) -- The inclusion of China-listed shares in MSCI at a 5 percent partial inclusion factor will take place on September 1. 

Passive funds that track the MSCI index, according to industry practices, have to open or increase positions one day before the effective date. Therefore, a large amount of foreign capital is expected to flood into the market Friday, especially in the late trading session, as evidenced by foreign investors' purchase of Chinese shares on May 31, the day prior to June 1 when the first phase of the A-share inclusion in MSCI took effect. 

The Shanghai Stock Exchange wrote in a note that the foreign capital inflow into the MSCI-included A shares via the Shanghai-Hong Kong Stock Connect surged substantially to 11.27 billion yuan (1.7 billion U.S. dollars) on the last day of May. That number hit the single-day record high in the first five months of this year, and was also 2.5 times the average amount of the monthly total.

The bourse also mentioned the purchase of A-shares by foreign investors through the Shanghai-Hong Kong Stock Connect brought a net capital inflow of 2.028 billion yuan (297.2 million U.S. dollars) in the last five minutes of trading session of May 31, accounting for 18 percent of the day's total inflow. 

Funds tracking MSCI stand at about 1.9 trillion U.S. dollars while those tracking ACWI are approximately 3.7 trillion U.S. dollars, compiled by Bloomberg, shows a research report by Everbright Securities. The second phase of the A-share inclusion in MSCI at a 5 percent partial inclusion factor is expected to bring around 17.58 billion U.S. dollars of foreign capital into Chinese stocks. 

In the medium and long term, the A-share market will see a foreign capital inflow of 2 trillion yuan (293.1 billion U.S. dollars) if there is full inclusion, which is expected to occur in the next 7 to 10 years, said Central China Securities. 

With the launch of the Stock Connect and A-share's inclusion in MSCI, foreign investors have grown into a significant force in the Chinese securities market. 

Data from Haitong Securities shows that foreign holdings of Chinese stocks have exceeded 1.2 trillion yuan (175.8 billion U.S. dollars) as of March this year, accounting for 5.39 percent of the total value of free-floating A shares. 

The trading volume conducted through the Stock Connect took up 6.7 percent of the total of the Chinese securities market in August 2018, more than doubled from 3.1 percent logged in December 2017, according to Everbright Securities. The foreign capital primarily flew into home appliance, food and beverage, and restaurant and tourism stocks, shows the company's research report.  

Email: lansuying@nbd.com.cn