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A shares fails to be included in MSCI’s index for the third time
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Global index provider MSCI Inc today announced it would delay including A shares into one of its flagship indexes as concern about market accessibility and capital mobility lingers.
Among obstacles for inclusion, MSCI highlighted the 20 percent monthly repatriation limits as a “significant hurdle” for investors, while anti-competitive clauses adopted by Chinese exchanges that restrict launching of financial products linked to A shares also impeded the inclusion.
The delay marks the third failed attempt to add A shares in MSCI’s widely-tracked emerging market index. In 2015, MSCI rejected A shares due to concern about the quota allocation process, capital mobility restrictions and beneficial ownership of investments.
Expectation was running high that MSCI would include A shares this year after Chinese authorities made several efforts in the past few months to address investor concern over trading in the country’s much-shielded capital market. Measures have been taken to ease quota allocation and capital mobility policies under the qualified foreign institutional investor (QFII) program, tighten trading suspension rules and clarify the beneficial ownership rights of foreign investors under China's cross-border investment schemes.
Remy Briand, MSCI Managing Director and Global Head of Research, said investors have recognized the actions but they need a period of observation to assess the effectiveness of the measures.
“There have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index,” Briand said in a release. “They demonstrate a clear commitment by the Chinese authorities to bring the accessibility of the China A shares market closer to international standards. We look forward to the continuation of policy momentum in addressing the remaining accessibility issues.”
MSCI said it would retain the A shares inclusion proposal as part of the 2017 Market Classification Review and it did not rule out a potential off-cycle announcement should further significant positive developments occur ahead of June 2017.
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