market coverage/selection conditions collect and analyze the information of local listed companies in the market, such as the number of unlisted shares, owners, free circulation, liquidity, etc. All these companies can join the MSCI index.

The following factors should be considered in stock selection:

(1) Company size. MSCI calculates the market value of each stock after free circulation adjustment as a representation of the company size, which includes defining and estimating the number of shares that foreign investors can invest in each stock, giving each stock a free circulation adjustment factor and calculating the market value after free circulation adjustment.

(2) industry representativeness. MSCI uses the global industry classification standard jointly developed by Standard & Poor's and MSCI*** to classify listed companies. This classification is the most widely used standard in the investment field. It uses the market demand-oriented method to classify companies, and those who provide similar products and services to customers are classified into one category. The classification standard divides the market into 1 economic sectors, 23 industry groups, 59 industries and 123 sub-industries, including energy, materials, industrial products, major consumer goods, optional consumer goods, health care, finance, information technology, telecommunications services and public utilities. MSCI aims to cover 85% of the adjusted market value of each industry in each country. A few countries can't meet this standard because of the lack of large-scale and liquid companies. MSCI will analyze the company's business activities and the diversity it brings to the index, and adopt a bottom-up method to construct the index, that is, at the industry level, under the principle of meeting 85% market value, as many companies as possible will join the index.

(3) liquidity. Liquidity is an important but not the only factor that determines whether to be selected. Consider a series of relative and absolute liquidity indicators when selecting samples, including monthly average transaction amount, monthly average transaction ratio (transaction amount/adjusted market value of free circulation), transaction frequency (including trading days) and so on. (1) Define the sample space. MSCI compiles indexes based on countries (or regions), and each company belongs to only one country (or region) for each country.

(2) For each listed company in this country (region), determine the market value of the company's shares that can be freely traded and circulated by international investors (free circulation market value).

(3) classify the listed companies according to the global industry classification standards.

(4)MSCI adopts the bottom-up method to construct the index, that is, at the level of industries, the stocks with large free-floating market value are added in turn, so that the free-floating market value of the selected stocks in each industry reaches 85% of the industry.

(5) Fine-tune the selected stocks in various industries, so that the free circulation market value of the selected stocks can reach more than 85% of the whole market. One of the important reasons why MSCI is widely quoted by international investors is the investability of its index compilation, that is, it is weighted according to the market value of companies that international investors can freely invest in, so investors can easily copy it. MSCI defines the proportion of free circulation as the proportion of shares that international investors can buy and sell in the open securities market. Restrictions include strategic shareholding, restrictions on foreigners' shareholding and other circumstances. MSCI's estimation of free circulation is only based on public shareholding information.

The determination of the market value of companies that international investors can freely invest in (free circulation market value) is completed by the following steps:

(1) Define the estimated free circulation ratio. For stocks without foreign ownership restrictions (FOLS)? The number of freely tradable shares is estimated as the number of tradable shares minus strategic holdings and other non-freely tradable shares, which specifically include? A cross-shareholding; ? Shares held by the founders, families and senior managers of Company B for a long time; ? C restricted employee stock ownership; ? D state-owned shares; ? E some strategic investors hold shares; ? F legal freezing of shares, etc. For stocks with FOLS, the number of freely circulating shares is the smaller of the following two: the number of freely circulating shares, the upper limit of foreign ownership MINUS the non-freely circulating part of foreign ownership.

(2) Give each stock a free circulation adjustment factor, which is called Foreign Inclusion Factor(FIF). Case 1: The proportion of free circulation is more than 15%, and there is no restriction on foreign ownership: the proportion of free circulation is an integer multiple of the nearest 5%. Case 2: The proportion of free circulation is less than 15%, and there is no restriction on foreign ownership: the proportion of free circulation is an integer multiple of the nearest 1%. Case 3: There are restrictions on foreign ownership: FIF takes the smaller of the following two: the estimated proportion of free circulation that foreign capital can hold: if the value is greater than 15%, take the integer multiple of the nearest 5%; If the value is less than 15%, take the integer multiple of the nearest 1%. The upper limit of foreign ownership minus the non-free tradable shares held by foreign investors is the nearest integer multiple of 1%. Scenario 4: Other restrictions on foreign investment: For other restrictions on foreign investment, if they affect the effective implementation of foreign investment, an adjustment factor, called LIF, will be added to adjust the adjustment factor of free circulation of foreign investment.

(3) based on the free circulation adjustment factor, calculate the free circulation adjustment market value (total market value multiplied by the free circulation adjustment factor). (1) the minimum size limit. In order to make the selected stocks have certain liquidity and ensure the reproducibility of investors, MSCI stipulates that the selected sample stocks must have a certain scale (free floating market value). When determining the minimum scale of a country or region, MSCI will consider the following factors: the free floating market value scale of the whole market, the distribution of the free floating market value of the stocks in this market will be added in turn to the changes in the proportion of the stocks with the largest free floating market value to the whole market; Market value concentration level of free market circulation.

(2) The proportion of free circulation is less than 15%.

The free circulation ratio of a stock is less than 15%. To join the index, one of the following conditions must be met: 1 basis points representing the MSCI World Index or 15 basis points representing the MSCI EMF Index. It accounts for 5% of the freely circulating market value of the country's index. The opening process of Taiwan Province's securities market to foreign capital is as follows:

In p>1988, foreign securities companies were allowed to set up branches in Taiwan to buy and sell overseas securities;

In p>199, foreign professional investment institutions were opened to invest in domestic securities;

In p>1993, foreign securities companies were opened to engage in securities business in Taiwan Province's local market;

In p>1996, foreign legal persons and natural persons could directly invest in Taiwan Province stock market (with limited shareholding);

in p>2, the restrictions on single and all foreign investors holding shares of listed companies in Taiwan Province were lifted.

MSCI has compiled the MSCI Taiwan Province Index since 1988, which reflects the performance of the overall stock market in Taiwan Province. However, considering the development of Taiwan Province market and the restrictions on foreign investment, MSCI has only included the Taiwan Stock Index in its various freedom indexes since September 2, 1996, and its calculation proportion is only 5%. On August 12th, 1999, MSCI announced that it would raise the proportion of Taiwan Province from 5% to 1%, which will take effect after February 2. The above decision is mainly due to MSCI's belief that the upper limit of Taiwan Province's individual or total foreign investment in listed (OTC) companies has been raised to 5%, and Taiwan Province's management measures for foreign investment, including pre-investment application procedures, are similar to those of other countries in the region, but not stricter than those of other countries, so the proportion of Taiwan Province included in the series index has been readjusted. The indexes affected by the above adjustments mainly include: MSCI Emerging Markets Free Index, MSCI All Country (AC) Far East Free Ex-Japan Index and MSCI All Country(AC)Free Index. On the whole, the impact of this adjustment is very obvious. By the end of June, 2, the accumulated net inward foreign investment amounted to US$ 22.9 billion, including US$ 1.8 billion, US$ 2 billion, US$ 1.9 billion, negative US$ 7 million, negative US$ 4 million and US$ 5 million from January to June, 2. In terms of the amount of foreign capital buying and selling listed stocks, by the end of June 2, all foreign capital bought more than 1? 27.2 billion yuan, of which from January to June, the monthly trading amount was 55.8 billion yuan, 46.3 billion yuan, 44.8 billion yuan, 48.7 billion yuan, 9.3 billion yuan and 19.7 billion yuan respectively. It shows that, except for the decline in April and May due to the influence of American and global stock markets, the trend is generally stable and increasing. As of September 22, the net inflow of foreign capital reached 35.66 billion US dollars.

MSCI index is an important reference standard for global institutional investors, especially for passive investors who follow the index. When MSCI increased the calculation proportion of Taiwan stocks, the weight of Taiwan stocks in MSCI related indexes also increased relatively, resulting in a large number of international funds investing in Taiwan Province stock market, which played an important role in the internationalization of active markets and Taiwan Province markets and improving the investor structure of Taiwan Province stock market. MSCI Taiwan Province Index has also promoted the development of related index derivatives. The earliest Taiwan stock index product, Taiwan stock index futures, was listed on the Singapore International Financial Exchange in 1998. This product is based on the MSCI Taiwan Province Index. On May 2, 21, the Hong Kong Stock Exchange launched the iShares MSCI Taiwan Province Index Fund and related ETF products, and some related index products were listed and traded in the United States. This has played a good role in increasing foreign investors' understanding of the local market and promoting the development of the securities market. The experience of South Korea also illustrates the influence of MSCI index. In February, 1998, MSCI adjusted the calculation weight of Korean stock market from 5% to 1%, which made international funds flow to Korean stock market, and the Korean stock market rose by nearly 8%. 1. MSCI China Foreign Free Investment Index In view of the rapid development of China's economy, China's economy has attracted increasing international attention. In order to meet the needs of foreign investors, MSCI compiled the MSCI China Foreign Free Investment Index. (1) Basic information. MSCI China Free Foreign Investment Index is designed to represent China companies that can be invested by foreign investors. MSCI China Free Foreign Investment Index is calculated in Hong Kong dollars and published every 15 seconds during the trading hours of the stock exchange. (2) Qualified stocks. The global securities eligible to be included in the MSCI China Free Foreign Investment Index include the constituent stocks of the MSCI China Index, the securities listed in Hong Kong in the form of H shares (in Hong Kong dollars), the securities listed in new york in the form of N shares (in US dollars) or the corporate securities that meet both of the following conditions:? A A company incorporated in the Hong Kong Special Administrative Region and listed on the Hong Kong Stock Exchange, a wholly-owned subsidiary of the Hong Kong Stock Exchange. ? B Its major shareholder (directly or indirectly) is a national, provincial or municipal organization or enterprise of the People's Republic of China (China), or a company incorporated in China. (3) Compilation criteria. MSCI compiles the MSCI China Free Investment Index according to the index compiling method applicable to the global MSCI standard index, which can be summarized into four simple steps:? A define the whole stock market-China market? B Adjust the total market value of all securities in the overall market of China according to the public shareholding of foreign investors. ? C securities markets are classified according to the global industry classification standard (GICS). ? D according to the compilation criteria and guidelines of MSCI index, select the securities that can be included in the index, including: aiming at 85% of the market value adjusted by public shareholding in each country and each industry group; Select securities with considerable market value, liquidity and public shareholding. (4) Basic characteristics of sample stocks. MSCI generally chooses stocks with large scale and good liquidity. The sample stocks of MSCI China Foreign Free Investment Index include leading stocks of China Mobile, China Unicom and Sinopec.

2. Possibility of China being included in MSCI index (1) Basic situation of securities market and compilation of MSCI index. If the minimum size limit (US$ 1 million) of selected sample stocks set by MSCI is followed, all stocks meeting this condition will account for less than 5% of the domestic securities market, which is far from the target of 85% set by MSCI. However, considering that the standard was formulated in 21, the market value of stocks has generally declined recently. If the minimum size of sample stocks of MSCI China Foreign Free Investment Index (464 million yuan) is taken as the benchmark, the total size of qualified stocks will account for 72.66% of the market, which is close to the target set by MSCI. With the listing of large-cap stocks of state-owned enterprises and the continuous relaxation of restrictions on foreign investment, it should not be difficult to meet or approach the quantitative stock selection index set by MSCI. (2) The possibility of China being included in MSCI index. Does MSCI include a country in the emerging market index system and compile its national index? Mainly consider the Gross Domestic Product per capita (GDP), market depth (market depth) and market liquidity (liquidity), local government regulation, Perceived investment risk, foreign ownership limits and capital control for foreign investors, With the general perception by the investment community and other factors, China's per capita GDP has reached a certain level and developed at a high speed (it can be seen that per capita GDP is not an obstacle to compiling the index by MSCI). From the above, it can be seen that the foreign investment capacity of China's securities market is also large and the liquidity of the domestic market is good. Therefore, at present, the main obstacle to China's inclusion in MSCI index is not quantitative factors such as scale, but some institutional factors such as domestic investment environment and policies, such as non-circulation ratio, access to basic information, restrictions on foreign investors' shareholding ratio, information disclosure quality, corporate governance, regulatory policies, capital account liberalization, exchange rate and so on. With the continuous development of China's securities market and the continuous improvement of the degree of opening to the outside world, more and more foreign investors will invest in China's securities market. As the most famous international index compiling company, MSCI will naturally not ignore the China securities market with great potential. MSCI has always attached importance to the China market. In order to meet the investment needs of investors in Asia, especially in Greater China, on June 1, 2, MSCI announced that it will provide two new Asian regional indices: MSCI China and Golden Dragon Index. The Chinese index consists of MSCI China Foreign Free Investment Index and MSCI Hong Kong, while the Golden Dragon Index consists of MSCI China and MSCI Taiwan Province (the weight of Taiwan Province market is 65%). A country has such an important position in the MSCI series index, in MSCI