BEIJING - Overseas institutional investors have been increasing their holdings of Chinese stocks ahead of the inclusion of A-shares by global index provider MSCI.

Foreign institutions were among the top ten investors in tradable shares of 29 stocks on the A-share market by the end of last year, according to data provider chinadatapay.com.

The institutions, which invested via the Qualified Foreign Institutional Investor (QFII) program, overweighed small and medium-cap shares and shares with relatively low price-to-earnings (P/E) ratios.

Of the 29 stocks, 16 companies have market capitalization below 10 billion yuan ($1.58 billion).

The P/E ratio of six companies favored by the foreign investors stood below 20, representing relatively low valuation.

Hunan Valin Steel Company, a steel maker that saw increased QFII holdings, has a P/E ratio of about 6.

The company saw its earnings per share surge last year thanks to rising demand as a result of cutting excess capacity, according to its annual report.

In terms of industries, QFII investors are bullish on the medical sector. Four companies in the industry saw QFII among their top ten investors.

The bullish sentiment came ahead of the widely expected inclusion of the A-shares by global index provider MSCI starting in June.

MSCI announced last year that it would partially include some large-cap A-shares in the MSCI Emerging Markets Index, a move that analysts said could bring large inflows of foreign funds to boost the value of A-shares.

MSCI announced last week the launch of 12 new indexes that will expand its China index offering, including the MSCI China A Index, MSCI China A RMB Index, and MSCI China All Shares Large Cap Index.