China has failed again to convince MSCI to include local Chinese shares to its key emerging market index.
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At a regular press conference June 15, CSRC spokesman Deng Ke said the commission agreed and supported the MSCI’s review on A-shares inclusion, adding the company’s decision will not affect the pace and direction of China’s capital market reform.
MSCI said Tuesday that while Chinese authorities have introduced significant improvements in the accessibility of the yuan-denominated “A-shares” market for global investors, the moves have not satisfied worldwide institutional investors.
“The 20 percent monthly repatriation limit remains a significant hurdle for investors that may be faced with redemptions, such as mutual funds, and must be satisfactorily addressed”, the index operator said.
“There have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index”, says Briand.
The benchmark Shanghai Composite Index closed up 1.58 per cent to 2,887.21 while the Shenzhen Composite Index jumped 3.12 per cent to 1,889.87, after both dropped in early morning trading.
“It is a negative surprise, but we believe every delay increases the probability of a positive decision at the next review, which may happen before next June”, said Steven Sun, head of China equity research of HSBC Global Research.
MSCI said on Tuesday that China still had to do more to make its markets accessible to foreign investors, and that it could not say when MSCI was likely to give the green light.
“What moves the market in China is not going to be driven by MSCI”.
“After a long time, Pakistan has been classified as an emerging market and that boosted investor sentiment”, Rehan Atiq, the chief operating officer of brokerage house Shajar Capital, said.
MSCI’s 2016 consultation on the inclusion of China A shares also uncovered concerns by investors about the effectiveness of the Chinese government’s new trading suspension policies, Mr Lieblich said.
However, it warned that full inclusion of China A-shares into MSCI’s indices was still subject to the abolishment of China’s quota system, liberalisation of capital mobility restrictions, and alignment of global accessibility standards.
Second, the massive but ad hoc intervention by the authorities during last year’s market turmoil belies the lack of transparency and proper rules and regulations in China’s markets. If China were added, it could expect an influx of billions of investment dollars into the domestic stock market at a time when the economy is slowing down.
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Angus Nicholson, market analyst at spreadbettor IG, was pointed in his analysis of the decision. VWO held about a 28.4% tilt toward China and 0% in South Korea since the FTSE classifies South Korea as a developed market.
