Index provider MSCI on Tuesday said that Beijing had more work to do in liberalizing its capital markets before it could add Chinese A-shares to its emerging markets index, which is tracked by US$1.5 trillion of managed assets.
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Expectations that MSCI would say yes this time climbed after Chinese authorities rushed through a series of fixes over the past five months, including relaxing the country’s quota-based foreign investment scheme, clarifying foreign ownership rights, and tightening up share suspension rules. Calling for more improvements in the accessibility of the A-share market, MSCI said China’s case will be taken up next year. “We look forward to the continuation of policy momentum in addressing the remaining accessibility issues”, said Remy Briand, MSCI managing director, in a statement.
Briand added that there had been significant steps toward the eventual inclusion of the shares in the MSCI Emerging Markets Index.
Deng insisted that China’s capital market reform agenda will not be influenced by MSCI’s decision.
“I’m very happy that MSCI called it out”, Karen Wong, head of equity portfolio management at Mellon Capital Management, told the Wall Street Journal.
MSCI’s lingering concerns cover investors’ ability to move money to and from China stocks, and the enforcement of new rules about suspending shares.
The Shanghai composite and the Shenzhen composite opened down more than 1 percent each, but then retraced their losses to trade up 0.33 percent and up 1.44 percent respectively by mid-morning SIN/HK. Chinese authorities have introduced a spate of reforms in an attempt to win their domestic market a place on the index.
Brendan Ahern, chief investment officer at KraneShares, believes the market’s composure stems from the fact that most people see A shares inclusion in the MSCI index as a fait accompli, given the size of the Chinese market.
“A shares’ inclusion has been perceived as one of the catalysts that has led some inflows to the market”, Lau said.
From May 2017, the country will be included in the emerging market index. “These efforts have already contributed to the positive development of the market, making it more attractive to global investors, and will continue to do so”, he added.
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However, MSCI said some global investors complained they were still awaiting their QFII quota allocation for applications submitted months before while other investors said that they were not yet able to benefit from daily capital repatriation even after policy changes had gone into effect. Product pre-approval restrictions: This area of regulation wasn’t raised publicly by MSCI in previous years, but on Wednesday the index provider noted it as another key concern for investors. In the long run, this would gradually bring more global institutional investors into the A-share market and help it to achieve a better pricing mechanism.
