China A shares remain on MSCI's review list
Talks continue despite China not making the grade last month over quota allocation concerns, capital mobility and investment ownership
Consultations are continuing on whether or not to include A shares in the MSCI Emerging Market Index, said Rene Veerman, MSCI's managing director and head of client coverage for Hong Kong and Taiwan.
"The most relevant, latest revision (of the MSCI Emerging Market Index) was just over a month ago. This year we won't include China A shares in MSCI Emerging Markets, but the consultation continues," Veerman told reporters in Hong Kong.
MSCI initiated a review to study the possibility of including A shares in its Emerging Markets Index in June 2013, after Beijing implemented a series of positive market-opening measures to welcome foreign capital.
The latest review took place last month but the world's most popular indexing house again decided against adding mainland shares, citing concerns about "quota allocation process, capital mobility restrictions and beneficial ownership of investments".
"MSCI reviews and identifies countries on the basis of economic development, size, liquidity, market accessibility and extensive discussions with the investment community," Veerman said yesterday in a presentation.
The index company will include China American depositary receipts - Chinese stocks traded on US exchanges - in the MSCI China index in November. They will account for about 13 per cent of the index.
When A shares are included in the MSCI China, they would account for more than 47 per cent, according to Veerman.
To help international investors track A-share performance, MSCI introduced a new index in June last year, the MSCI China A International Index, comprising 313 A shares, vastly different from MSCI China that only tracks mainland stocks traded in a foreign currency or listed and traded in Hong Kong.
Among the 313 stocks in the basket, financials account for 32 per cent and industrials, 23 per cent, followed by consumer discretionary, materials, information technology and health care.
"MSCI China A International Index … demonstrates MSCI's commitment to China, which is currently one of the largest and most liquid markets in the world, with foreign participation of less than 2 per cent," Veerman said.
Several exchange-traded funds in the US and Europe are already tracking the index, according to Veerman, without elaborating.
In Asia, GF International Investment Management yesterday said it would launch an ETF to track the new index.
"As the inclusion of A shares in the MSCI Emerging Markets Index draws closer, investors benchmarking the index will need to rebalance," said Azra Lau, the head of exchange-traded funds at GF International.
MSCI previously forecast global funds would add about US$20 billion to the Shanghai and Shenzhen markets if mainland shares are included in its index. HSBC puts the figure at closer to US$50 billion.
About US$9 trillion of assets around the world were benchmarked to the MSCI indices as of the end of last year, including US$1.5 trillion tracking MSCI Emerging Market Index, US$2.2 trillion in MSCI World Index and US$2 trillion in tracking MSCI ACWI Index.
