Financial regulators in Hong Kong hailed Morgan Stanley Capital International's decision to include the A-share index, saying the inclusion will further cement the city's gateway status linking the mainland equity market with overseas stock markets.

Tuesday's decision by MSCI may elicit initial inflows of $17 billion to $18 billion into the domestic equity market, according to MSCI estimates. Capital inflows may reach $340 billion if A-shares are wholly included in the MSCI indices.

"The inclusion of A shares in the MSCI Emerging Markets Index signifies the growing importance of the A-share market to international investors, and will further strengthen Hong Kong's role as the gateway to access the mainland stock market under the existing stock connect programs," said Ashley Alder, chief executive officer of the Securities and Futures Commission, the city's securities market regulator.

The SFC will work closely with the China Securities Regulatory Commission to ensure smooth implementation, the SFC statement added.

"The move will help the Chinese mainland become the second biggest financial market in the world. It is the beginning of the full integration of Chinese mainland's financial market in the world," said Charles Li Xiaojia, chief executive of the Hong Kong Exchanges and Clearing, at the Shanghai Lujiazui Forum held on Wednesday.

Hong Kong's Hang Seng Index dropped to 25,694 points, or 0.57 percent, with a turnover of HK$76.5 billion ($9.79 billion) on Wednesday when MSCI included the A-share index in its Emerging Markets Index. The share price dip in Hong Kong on Wednesday was led by developer stocks and the retreat of regional gauges in Asia.

Financial analysts said Hong Kong has played a pivotal role in A-share inclusion in MSCI's indices after having been rejected three times.

"The successful launch of the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes paved the way for this inclusion," said Helen Wong, HSBC's chief executive in China.

"The larger 222 A-share inclusion, from 169 stocks proposed earlier, was mainly due to the inclusion of A-shares that are also listed in Hong Kong," said Julian Wee, Asia senior markets strategist at National Australia Bank.

A quick guide to MSCI indexes

MSCI is one of the most influential capital market index providers. Around 97 percent of world's top 100 asset managers track indexes provided by MSCI.

Beginning in June 2018, MSCI will include China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index, using a two-step inclusion process.

The number of China A shares in the pro-forma MSCI China Index would be 222.

The total number of constituents in the pro forma MSCI China Index would increase from 152 to 423.

The pro forma weight of China A shares in the MSCI Emerging Markets Index following the completion of the second implementation step would be approximately 0.73 percent.

The inclusion may bring capital of $11.5 billion to the A-share market in the short term, and $300 billion in the longer term, according to an estimate by BOC International.