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MSCI revises A-shares inclusion proposal

GLOBAL index provider MSCI Inc has renewed its plan of including Chinese A shares into its global benchmark by cutting the number of component companies, according to a proposal document updated on the company’s website yesterday.

By applying the updated proposal, the number of China A-shares to be included in the company's emerging market index would be reduced to 169, mainly large-cap firms, from 448 under last year’s proposal. The weight of Chinese A-shares would be about 0.5 percent compared with the 5 percent previously proposed.

Some analysts said it indicates a bigger chance for MSCI to include Chinese stocks in its flagship emerging-market index, a process that started in 2014. The index provider declined to include A-shares last year, citing obstacles of market access such pre-approval requirements by local exchanges and stocks suspensions.

With Shanghai-Shenzhen Stock Connect launched in December, the investment environment has changed, MSCI said in the document, as the stock link allows investors to access approximately 1,480 Shanghai and Shenzhen stocks through the schemes.

MSCI also said it is in discussions with Chinese exchanges to remove requirements on “new and pre-existing financial products” linked to China A-shares, according to the document.

Under the latest proposal, mid-cap securities, A-share with H-share constituents and stocks that are suspended for more than 50 days will be excluded. The offshore yuan will be used for index calculations, rather than the onshore currency as previously suggested.

Recent moves show that China has been pushing its agenda of financial reform and opening cracks for foreign investors to access the mainland market.

Fang Xinghai, vice chairman of China Securities Regulatory Commission, said at a media briefing in January that China would be happy to see the inclusion of A-shares, but the inclusion itself won’t affect the opening-up pace of A-shares.

“Any emerging market index that excludes China is not complete,” Fang said. “As for the inclusion of A-shares into MSCI, it’s eventually a business decision that is up to MSCI.”


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