India's weight in the MSCI Emerging Market Index is likely to fall at least by a percentage point in the next one year, causing an expected outflow of as much as $2-3 billion investment by passive funds.
Asian shares rose on Friday, driven by a rally in Chinese markets after index publisher MSCI announced it would boost the proportion of mainland shares in its global benchmarks, while strong USA economic data helped the dollar higher.
World markets enjoyed a lively end to an otherwise slow week on Friday, with Chinese A-shares leaping after MSCI quadrupled their weight in its global benchmarks and strong USA economic data lifted the dollar and bond yields.
"All of this helps toward a positive underpinning in the market", Krosby said.
Following a dreary trajectory over the past year and overall lackluster performance for quite some time, China's stock market does need some good news to boost confidence and morale.
It will increase the inclusion factor of Chinese large-cap stocks to 20% from the current 5%, with increments of 5 percentage points each in May, August and November. "So I think investors are taking very seriously the fact that the rebalancing of MSCI is happening", said Jim McCafferty, head of equity research, Asia ex-Japan at Nomura.
The index provider said investors and other market participants had flagged that a two-stage process could incur "execution pressure on the implementation dates". As China deepens its reform and cultivates a healthier market, wider accessibility to overseas investors is only the sure thing to happen, which in turn will benefit both China and the world. India's weightage will come down by 32 basis points, or 0.32 percentage point, resulting in an investment outflow of almost $1 billion, as funds that invest according to the weight of the index components adjust their holdings.
It was continuing to lift yields on benchmark 10-year Treasury notes.
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Wall Street ended lower on Thursday after U.S. President Donald Trump fueled concerns over U.S.
Better-than-expected USA economic growth in the fourth quarter had little impact on U.S. stocks.
After a 16 percent surge from Christmas through the start of this week, MSCI's gauge of global equities has tread water as investors await progress in U.S.
The yield on 10-year Treasuries held at about 2.72 percent.Australia's 10-year yield climbed about five basis points to 2.15 percent.
The modest inflation lends support to the Federal Reserve's pledge to be patient on hiking USA interest rates, said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
The dollar rose, hitting 10-week-highs against the yen, as risk appetite improved amid a more upbeat outlook on some of the world's largest economies and on the prospect of a U.S.
In commodity markets, U.S. crude added 0.6 per cent to $US57.67 a barrel, and Brent crude rose 0.7 per cent to $US66.72 per barrel. Futures on the S&P 500 Index rose 0.4 percent after the underlying gauge fell 0.3 percent Thursday.Euro Stoxx 50 futures gained 0.3 percent.
Gold dropped 1.7 percent to $1,290 an ounce.