(Yicai Global) Feb. 19 -- US-based index compilation giant Morgan Stanley Capital International will announce whether it will increase the weighting of Shanghai and Shenzhen bourse-listed companies -- also known as A-shares -- in its indexes in early March.

Several large foreign institutional investors said they support the higher A-share weighting in reply to MSCI's feelers. Some, however, harbored misgivings over lifting the ratio directly to 20 percent from 5 percent.

The Netherlands' largest wealth management firm Robeco supports MSCI's increased A-share inclusion factor, but raising it to 10 percent twice this year is probably more reasonable than to 20 percent once, Fabiana Fedeli, Global Head of Fundamental Equities and Portfolio Manager in the Emerging Markets Equities, told Yicai Global in an interview. 

Current law and policy bars some foreign institutional investors from investing in A-shares through the Shanghai, Shenzhen and Hong Kong Stock Connect, she added.

Market players are betting on a high likelihood of MSCI adding to A-shares' inclusion, Wang Xinjie, wealth management investment strategy director with Standard Chartered China, told Yicai Global, adding the actual ratio will be unknown until the decision is announced on March. 1. "MSCI's great flexibility in adjusting weighting renders any attempts to predict this difficult," he said.

The MSCI included A-shares into its emerging market index for the first time in June with a 5 percent weighting. It further proposed in September to boost this factor to 20 percent in May and August this year.

Chinese regulators are bending over backwards to meet the needs of overseas investors -- e.g. quadrupling the daily quotas of the Shanghai, Shenzhen and Hong Kong Stock Connects -- and investors also speak highly of these measures, Xie Zhengbin, MSCI Asia research director and managing director, told Yicai Global in an earlier interview, adding this is why MSCI is suggesting greatly increasing the inclusion.

A weighting of 5 versus 20 percent is, however, quite different for investors, Xie also noted. A 20 percent one will place greater demands on investors' risk management, such as by controlling them with derivatives like futures and options, he said, adding it will also raise new requirements for A-share's suspension of trading policy.

A deluge of foreign capital has already inundated the A-share market.

China will receive an influx of between USD70 billion and USD125 billion this year, Morgen Stanley estimates. That figure will stabilize between USD100 billion and USD220 billion each year over the next decade, it adds.

The investment bank also predicted the MSCI will increase the weighting of A-shares in its emerging market index to 100 percent over the next five to eight years.

Editor: Ben Armour