Investors to pump $400bn into Chinese stocks and bonds: Morgan Stanley

Morgan Stanley estimates that yuan liberalisation and the opening up of China's capital account could drive $400bn (£258bn, €357bn) of overseas funds into Chinese equities and bonds over the next five years.

Morgan analysts, led by Serena Tang, opined that in the most optimistic scenario, the gush could exceed $1.2tn if markets in the world's second-largest economy are fully open.

Analysts, on 11 June sent out a note to clients, saying that the easing of restrictions could also trigger nearly $6bn in annual outflows from China, as investors there diversify their holdings.

Earlier in the week, US-based equity index compiler MSCI put off a decision on including yuan-denominated scrips in its emerging-market gauge, citing investor concerns such as accessibility and capital mobility as the reason behind its decision.

The potential initial weighting of Chinese shares in MSCI's index will be some 1%, driving $3bn-$5bn of inflows, according to Morgan. That into bonds will be about $3bn initially.

Beijing is loosening capital controls in order to get the International Monetary Fund (IMF) to include the yuan in its basket of reserve currencies this year. Freer access to China's financial markets will lead to the nation's assets being included in global benchmarks tracked by fund managers.