MSCI delays adding A shares to emerging markets index
Print Edition
MSCI Inc, a leading provider of financial indexes, has postponed the inclusion of China’s A shares in its global benchmarks, pending a solution on issues over market accessibility.
MSCI said in a statement that it would not include the yuan-denominated Chinese mainland shares in its widely traded emerging markets index at its annual June review this year due to “a few important remaining issues related to market accessibility.”
The delay marks the second failed attempt to include A shares in the MSCI global indexes after a similar proposal last year was turned down by some investors amid concerns about access to China’s much-shielded capital market.
“In our 2015 consultation, we learned that major investors around the world are eager for further liberalization of the China A-share market, especially with regard to the quota allocation process, capital mobility restrictions and beneficial ownership of investments,” Remy Briand, MSCI managing director and global head of research, said in the statement.
MSCI highlighted a number of hurdles against the integration of A shares, such as insufficient flexibility in quota allocation under the Qualified Foreign Institutional Investors program, curbs on capital repatriation and daily limits on investment flows under the trading link between the Shanghai and Hong Kong exchanges.
MSCI said it would form a working group with the China Securities Regulatory Commission, the mainland’s securities regulator, to address these issues. The shares will be included once the issues are resolved.
Goldman Sachs said yesterday that one of the key obstacles for including mainland shares in MSCI indexes is the restricted access to Shenzhen-listed stocks, which account for 41 percent of total A-share market cap.
The possible launch of a Shenzhen-Hong Kong stock link in the fourth quarter will increase the likelihood of A-share inclusion, it said.
Meanwhile, UBS said that assuming A shares were included with an initial weighting of 5 percent, inflows of 15 billion yuan (US$2.4 billion) from passive funds could be expected in the A-share market.
China International Capital Corp said yesterday: “We believe given A-shares’ growing market cap and increasing importance, as well as a series of reforms and policy efforts introduced so far in capital account liberalization and yuan internationalization, it is only a matter of time before global index providers like MSCI and FTSE add A shares to their global index systems.”
Earlier, VANGUARD Group, the world’s largest mutual fund company, said it will include stocks listed on the Chinese mainland in its US$69 billion emerging market fund.
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