It’s going to be wild ride for equities in the emerging markets this month and in August.

Why?

China’s equity weighting within the MSCI Emerging Markets indices will be increasing from 5% to 20%.

Source: MSCI

What it was only 5% in the past?

Yes, according to MSCI “The 5% initial inclusion of China A shares was successfully implemented in May and August 2018 with overwhelming positive feedback from market participants”

So what’s the impact going to be on the rest of EM?

You’re going to see decrease weightings throughout all other EM countries naturally probably to the tune of USD 67 bn (according to several articles I’ve read) going from other EM’s to China’s equity market

Source: CNBC

So Thailand is dead?

Now here’s where it gets interesting because MSCI also proposed to include Non-Voting Depository Rights (NVDRs) into its free float calculations for Thailand. Yes its rather odd that it hadn’t been until now, but it’s a fact and if is implemented it could be a boon for Thai Equities and/or offset the decline from the changes made in regards to China’s weighting. As of writing I still haven’t seen any confirmations from MSCI regarding these changes.

Source: Bloomberg