In its journey to greater global integration, China has faced several speed bumps over the last year. The still-unresolved trade dispute with the US has spurred punitive tariffs and shone a critical light on some of its trade practices. At the same time, softer domestic economic growth and a weak demand environment abroad has curbed China’s trade with other major partners.

But for Chinese capital markets, the trend remains tighter global integration. US index provider MSCI on Thursday confirmed it would quadruple the weighting for Chinese A-shares in its EM index to 3.3% by November, up from around 0.7% at present. We see several implications for global investors:

* Inflows into China onshore will accelerate. This latest MSCI weight increase should help trigger at least USD 60bn in inflows to A-shares in 2019, pushing cumulative foreign ownership above USD 160bn. We believe higher A-share allocation is a long-term structural trend.

* In the near term, incremental buying will likely remain biased toward select sectors and stocks currently preferred by overseas capital: white goods, insurance, healthcare and electronics. The sharp run-up in onshore brokers, stoked in part by the recent recovery in onshore markets, offers attractive levels to take profits in this sector.

* Active EM investors will find it harder to brush aside onshore portfolio exposure. A-shares weight in the EM benchmark will climb above 3% this year; within the next five to 10 years, this could rise to 15%. Other international index providers like FTSE and Bloomberg have solidified plans to integrate onshore financial assets in their global indexes, likely spurring greater coverage and investment in global asset managers.We remain tactically overweight on Chinese equities in our Asia portfolios. Within our China strategy, we continue to prefer onshore to offshore Chinese stocks, with the former set to benefit not just from foreign capital inflows, but also from more accommodative monetary policy and fiscal stimulus.