It also advances President Xi Jinping's ambitions to make the yuan a global currency.
MSCI plans to add the A shares in a two-step process next year, following reviews in May and August 2018. Also Tuesday, MSCI put off decisions on whether to reclassify Argentina as an emerging market and to demote Nigeria to standalone status.
The Saudi market now has a capitalization of about $445 billion.
"Inclusion in the MSCI index family is a strong signal of greater market openness, and it will undoubtedly help the A share market to attract broader attention and participation of worldwide investors", said Yannan Chenye, head of China equities research and portfolio manager at Harvest Global investments in Hong Kong. In addition, there are concerns about whether China's volatile market will adapt to worldwide best practices.
But Yan Kaiwen, an analyst with China Fortune Securities, said he believes inclusion of A-shares is "not that likely". "More importantly it strengthens Chinese reformers that want to open China's markets".
China's CSI300 index had already risen in anticipation of MSCI's acceptance and touched a near 18-month peak last week. "Obviously, over time, the further involvement of global active funds in the A share market will benefit companies with superior fundamentals rather than simply thematic stories". Hence, this would be an important step for the future of the Chinese stock markets, even though the financial extent of a minority of A-shares inclusion will be insignificant in the short-run. "BlackRock has continued to support all opening of investment in China's onshore capital markets for a number of years", Ryan Stork, BlackRock chairman, Asia Pacific, said in a statement.More news: Donald Trump has no intention of firing Robert Mueller: White House
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The Saudi Stock Exchange (Tadawul) is pleased to announce today that it has been named by MSCI to the organization's Emerging Market Index Watch List. The index giant said it will add 222 China A Large Cap stocks in a phased manner beginning next year.
While mainland equities have been losing value, the nation's stocks traded offshore have surged toward two-year highs, led by technology firms.
In 2016, MSCI cited restrictions on foreign investment flows in the mainland market, trading suspensions of Chinese-listed companies and pre-approval requirements as the three main hurdles.
By late morning the blue-chip CSI300 index was up 0.6 percent at 3,568.74 points.
"Using the official rate means that MSCI is overstating year-to-date performance of their Frontier Market Index by about 1 percentage point", said Tom Egbert, an analyst at Frontaura. President Mauricio Macri lifted capital controls since taking office in December 2015, but MSCI wanted to wait.
The MSCI has refused to include the Chinese stocks in its global benchmarks because they are subject to strict capital controls by the Chinese government, trading restriction and long interruptions in times of bearish market.
iShares MSCI Emerging Markets Indx (NYSE EEM) traded down 1.11% during trading on Tuesday, hitting $40.98.