MSCI shuns China in index review

China-Asia-700x450.jpgMSCI has not included China in the MSCI Emerging Markets Index, saying it has more improvements to make on market accessibility.

In its 2016 market review the index provider said it will delay including China A Shares in the index, despite “significant improvements” from the Chinese authorities.

However, Remy Briand, MSCI managing director and global head of research, says further improvements on the accessibility of the market is needed.

“In keeping with its standard practice, MSCI will monitor the implementation of the recently announced policy changes and will seek feedback from market participants,” he says.

MSCI commended China for fixing issues on beneficial ownership, improved regulations on trading suspension, and QFII policy changes.

“There have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index,” says Briand.

However, MSCI said feedback from market users showed there was a need for a “period of observation to assess the effectiveness of the QFII quota allocation and capital mobility policy changes as well as the effectiveness of the new trading suspension policies”.

Catherine Yeung, investment director for Asia ex-Japan equities at Fidelity International, says: “What’s important to note is that while we have seen some significant improvements in terms of how foreign investors access domestic Chinese stocks, regarding the MSCI criteria that was set last year, a lot of it still needs to be fulfilled.

“MSCI said the inclusion of A-shares could occur within the next year, outside of the normal review period which falls every June. If we see further developments in terms of regulation and in terms of how we access the market as investors from a foreigner perspective, then indeed we could see inclusion.”

The MSCI index review also saw Pakistan reclassified as an emerging market, rather than a frontier market. From May 2017, the country will be included in the emerging market index.