“There have been a lot of significant improvements made recently by the Chinese authorities to improve accessibility for global investors; however, some of them are relatively recent, so we need a little bit of time to assess the effectiveness of these measures”, Briand said.
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There are only hours left until MSCI is due to announce whether Shanghai and Shenzhen listed stocks or A-shares will be added to its Emerging Markets Index.
China’s domestic equities were denied entry into MSCI Inc’s benchmark indexes for a third time, a setback for President Xi Jinping’s efforts to raise the profile of mainland markets and turn the yuan into an worldwide currency.
According to investors, now that MSCI has rejected A-Shares, the Chinese government would act fast to get the eligibility next time.
CSRC said the decision by MSCI will not affect the opening-up or reform of China’s capital market, adding that China needs to continue to build a stable and healthy capital market.
But Beijing appeared to be unfazed by the MSCI decision, claiming that the “A” shares are becoming “more influential” in the world.
“The experience of the Korea and Taiwan markets suggests that MSCI inclusion does not necessarily mean a change in the underlying market trends”, said HSBC’s head of Hong Kong and China equity research, Steven Sun and strategy associate Kate Zhang in a Wednesday note.
MSCI’s lingering concerns cover investors’ ability to move money to and from China stocks, and the enforcement of new rules about suspending shares.
After all, Pakistan’s elevation to MSCI’s emerging market index shows reform can pay off. The MSCI punished Pakistan in 2008 by downgrading it to frontier market status after the Karachi Stock Exchange imposed a rule that caused the market to freeze for more than three months. “And for institutions, their expectations of an inclusion have been greatly reduced since the market crisis past year”, said Charles Wang (萬凱璐), chairman of Shenzhen-based Appleridge Capital Management Co (道朴資本管理).
In a press release on Tuesday, MSCI says the 20% monthly repatriation limit “remains a significant hurdle” for investors that may be faced with redemptions such as mutual funds and the issue must be “satisfactorily addressed” before A-shares are to be included in the EM index. Finally, the local exchanges’ pre-approval restrictions on launching financial products remain unaddressed.
However, analysts said they were not particularly surprised by MSCI’s decision.
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MSCI said that it would retain the option to include the A shares as part of its next market classification review in 2017. This is unique among emerging markets and irks foreign investors and regulators alike.
