MSCI renews talks on adding Chinese mainland shares to emerging index
Index provider MSCI said it would resume discussions with investors on including Chinese mainland-listed shares in its main emerging equity benchmark, though it expressed concern about barriers to investment.
The company will make a decision in June on whether or not to include 5 per cent of A-shares' (mainland) free float-adjusted market capitalisation.
Inclusion in the MSCI emerging markets index, which is the benchmark for more than $US1 trillion in investor assets globally, would be a coup for China which is seeking to boost its stock markets.
Inclusion in the MSCI emerging markets index, which is the benchmark for more than $US1 trillion in investor assets globally, would be a coup for China. Qilai Shen
It will also potentially bring billions of dollars into Chinese shares from funds that passively track the index.
The mainland Chinese market rallied around 50 per cent in the first half of 2015 then slumped over 30 per cent from mid-June after MSCI decided not to include A-shares. This also coincided with signs that China's economy was slowing.
The exclusion was attributed to investors finding it difficult to move money in and out of China.
The reopening of the consultation follows recent changes by China to improve access to the A-shares market for international institutional investors, MSCI said.
In February, the government said it would relax its $US81 billion Qualified Foreign Institutional Investor scheme which allows some foreign investors to buy shares and bonds in China.
MSCI said it would seek feedback on the effectiveness of these changes. But it warned that concerns remain over "significant liquidity risks" that could result from further voluntary local share trading suspensions.
China's handling of last summer's equity sell-off drew flak for share suspensions and caps on selling which dramatically reduced market liquidity.
"Widespread market trading suspensions after the market sell-off in the second half of 2015 and early 2016 have created a precedent, and market participants' desires are that the Chinese authorities should implement measures that would prevent such a situation from occurring again," MSCI said.
The company also expressed concern about "anti-competitive" clauses that restrict financial institutions from launching products linked to indexes that contain A-shares.
Such products, even if listed internationally, currently need pre-approval from local Chinese stock exchanges, a rule not seen in other emerging markets.
"This issue may become a roadblock to the inclusion of China A-Shares in the MSCI Emerging Market Index if not addressed by the local Chinese stock exchanges," MSCI added.
MSCI is also seeking feedback on reclassifying Pakistan as an emerging market and Peru to frontier market.
Reuters
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