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April 7, 2016

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MSCI eyes 3rd time lucky for inclusion of A shares

MSCI Inc, a global provider of financial indices, is “more likely” to include China’s yuan-denominated A shares in its global benchmarks this year after the government eased curbs on foreign investment in the securities markets, UBS Securities said.

The index provider has started a new round of consultations — its third attempt — with international institutional investors on whether to include China’s A shares in its widely traded emerging markets benchmark, MSCI said last week.

A decision will be known in June.

MSCI cited issues such as widespread voluntary trading suspensions following the stock market rout last year as roadblocks to the inclusion of A shares in the MSCI Emerging Market Index. It was also concerned about anti-competitive behavior by China’s exchanges that limited financial institutions from launching products linked to indexes that contain A shares.

“Nevertheless, we believe a decision to include A shares is much more likely this time than it was last year,” Gao Ting, head of China strategist at UBS Securities, said yesterday.

Concerns that delayed A-share inclusion last year have been eased after China in February relaxed rules for funds under the Qualified Foreign Institutional Investor program.

“Barriers to foreign capital entering the A-share market should be further reduced after the launch of the upcoming Shenzhen-Hong Kong Stock Connect and expansion of the Shanghai-Hong Kong Stock Connect, meeting foreign investors’ demand for higher liquidity,” Gao added.

Inclusion in the MSCI emerging markets index is set to attract billions of dollars from funds to China’s stock market. UBS estimated an initial inclusion of 5 percent of A shares would bring in US$2.2 billion of inflow from passive funds.


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