Even before yesterday’s unexpected “gift” for Chinese stocks, the Shanghai Composite, which was hibernating deep in bear market territory until mid-September, staged a remarkable comeback in the past ten days amid speculation for more Chinese stimulus to offset the Trump tariffs.

And then, in what SocGen dubbed an “incredible piece of timing”, MSCI last night said it would consult on quadrupling the inclusion ratio of China A stocks in EM indices from May 2019; it is hardly a coincidence that MSCI released this news a day before FTSE are scheduled to announce their decision on whether to include China its EM indices for the first time, according to SG strategist Puneet Singh.

Here is what happened: MSCI will consult on increasing A share inclusion from 5 to 12.5% of float in the May 2019 review, then to 20% in Aug 2019. They also also make ChiNext Shenzhen names eligible from May 2019. And finally mid cap names could be added a year later, in May 2020’s semi-annual review. The consultation will close mid Feb 2019, announced by the end of that month, giving just 3 months notice.

If this goes ahead, there may be a flood of new money forced to enter China as China A shares could increase from by 1.07% to 1.80% of EM World, and by 1.4% to 2.4% of EM Asia, while stage 2 could take China A to 2.85% of EM, 3.8% of Asia. China overall could move from 31% to 32.50% of EM, and from 41.5 to 43.20% of Asia by stage 2.

China A potential demand could be US$ 2.76bn with net of China US$1.9bn.

Separately, FTSE is scheduled to also announce its decision today/tomorrow (26/27 Sep 2019 1230am London time) on China A as well as Romania inclusion. While the outcome of this event is not yet known, given a press conference is being held, and given that they switched to considering Connect and not domestic listings, inclusion does seem likely.

So we could be in a situation from the middle of next year, where the two largest providers add or significantly increase China A stocks within a few months of each other, providing a fresh stimulus for both domestic and foreign investors to allocated money to China (and don’t forget Saudi Arabia).