China stock market

China regulator says A shares inclusion by MSCI ‘can’t wait too long’

PUBLISHED : Sunday, 12 June, 2016, 10:20pm
UPDATED : Monday, 13 June, 2016, 1:02pm

Qi Bin, chief of the China Securities Regulatory Commission’s department of international cooperation, stepped up calls for the inclusion of A shares into MSCI’s emerging markets benchmarks Sunday, two days ahead of a final verdict by the global index provider.

“You can’t wait too long,” he said. “We take a very open attitude to MSCI’s decision, but it will be included sooner or later.”

The remarks by Qi at the Lujiazui Forum, one of the mainland’s most prominent financial conferences, reflected Beijing’s eagerness to speed up internationalisation of its stock market, in the wake of a dramatic share price collapse last year.

MSCI is due to decide on June 14 whether to include A shares as part of its emerging market benchmarks, a move likely to direct capital inflows to the yuan-denominated market as international fund managers buy mainland shares to match weightings.

The outlook remains unclear as concerns about A shares’ volatility, liquidity and inadequacy of the trading mechanism could prompt MSCI to delay the inclusion. During annual reviews conducted in 2014 and 2015, MSCI opted not to include the mainland shares in its global benchmarks.

Qi said that a global index would turn out to be “incomplete” without mainland-listed shares.

He acknowledged that the A-share market was still developing, but said that global investors would be better served by admitting the shares prior to them reaching a more mature stage.

With an eye to the upcoming MSCI review, Beijing has made a series of efforts to fine-tune the manner in which the Shanghai and Shenzhen bourses operate.

The foreign-exchange regulator revised rules on the qualified foreign institutional investor (QFII) scheme to ease cross-border capital flows by overseas investors. In a related move, the China Securities Regulatory Commission (CSRC) said it supported the recognition of rights and interests of beneficial owners of securities.

Qi’s statement Sunday was seen as a clear indication of the importance the CSRC places on the issue. The commission has strived to allay concerns about a slowdown in reforms after a market rout between mid-June and late August last year wiped out US$5 trillion (HK$38.8 trillion) of market capitalisation.

The CSRC has put on hold a plan to ease initial public offering procedures. It has also abandoned plans for the establishment of a new board geared towards emerging industries.

Still, Fang Xinghai, a vice chairman of the CSRC, said in May that the regulator would still take steps to open up the securities and futures markets in an effort to give market forces a greater role in setting economic activity.

The mainland and Hong Kong securities regulators launched the Shanghai-Hong Kong stock link programme in late 2014, allowing investors to trade shares on each other’s markets.

A similar scheme linking the Shenzhen and Hong Kong exchanges is expected to get official approval soon.

Qi said the CSRC was working with British regulators to establish a stock connect scheme between the Shanghai and London stock exchanges.

Some analysts said valuations of the Shanghai and Shenzhen shares are relatively depressed following last year’s drubbing, making this a fairly attractive entry point for foreign fund managers, should the MSCI inclusion of A shares take place.