MSCI again rejects China shares for index

China's securities regulator said any global benchmark index that doesn't include China A shares is incomplete, after US index provider MSCI Inc on Tuesday again rejected including domestic Chinese equities in its prominent emerging markets benchmark index.

The China Securities Regulatory Commission (CSRC) said MSCI's decision to not include A shares won't impact the reform and opening process of the country's capital markets.

It added that China needs to build long-term, stable and healthy capital markets.

MSCI said it will retain the China A shares inclusion proposal as part of the 2017 Market Classification Review. MSCI does not rule out a potential off-cycle announcement should positive developments occur by June 2017.

"International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A-share market before its inclusion in the MSCI Emerging Markets Index," Remy Briand, MSCI managing director and global head of research, said in a statement.

MSCI said that it would retain the option to include the A-shares as part of its next market classification review in 2017.

"MSCI will monitor the implementation of the recently announced policy changes and will seek feedback from market participants," Briand said.

In June 2015, MSCI rejected the Chinese shares, citing uncertainty about who actually owns them and how easily investors can withdraw their money from Chinese investments. Earlier this year China's stock exchanges published rules that restrict arbitrary trading suspensions for Chinese stocks. Chinese officials have been pushing for the inclusion of A-shares, seeing it as another step in the assimilation of China into the global financial marketplace.

Qi Bin, an official with the China Securities Regulatory Commission, said improvements to the trading-halt system were part of the Chinese government's efforts to facilitate MSCI inclusion. He also cited freer money transfers allowed by the foreign exchange regulator and greater recognition of beneficiary ownership.

Briand acknowledged that "there have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index".

MSCI said it gathered feedback from market participants on the potential inclusion of the A shares in the index. "Investors recognized the actions taken to further open the China A-share market and highlighted that the topic of beneficial ownership has been satisfactorily resolved," it said.

"They generally stressed the need for a period of observation to assess the effectiveness of the QFII quota allocation and capital mobility policy changes," said the MSCI statement.

"The 20 percent monthly repatriation limit remains a significant hurdle for investors that may be faced with redemptions such as mutual funds and must be satisfactorily addressed."

MSCI said it will retain the China A shares inclusion proposal as part of the 2017 Market Classification Review. MSCI does not rule out a potential off-cycle announcement should positive developments occur by June 2017.

paulwelitzkin@chinadailyusa.com