Time is right for MSCI to finally include mainland A shares in its Emerging Markets Index

By Xiao Xin Source:Global Times Published: 2017/6/7 22:28:39 Last Updated: 2017/6/20 21:28:39

Having rejected the inclusion of Chinese mainland-listed stocks in its Emerging Markets Index each year since 2014, it seems index provider MSCI feels on edge this time around as a fourth inclusion attempt will shortly be reviewed.

The continued absence of yuan-denominated A shares from one of the world's most followed indexes tracking emerging market stocks is unhelpful not only for China's equity market, but increasingly for the New York-based index compiler. A shares have been growing in prominence in world markets, and their non-inclusion in what's claimed to be a global index comes across as increasingly untenable.

Understandably, the index provider needs to bridge the gap between global asset managers and their Chinese counterparts, and it's not that easy to enable matchmaking between global investors and an A-share market that is not yet fully open. But that's not enough of a reason for a prolonged delay in including A shares in the index.

It's time to say yes early Wednesday morning Beijing time, and the merits of doing so are obvious given that China's increased regulatory efforts are seen to be laying the groundwork for the country to rise to prominence in the global equity market.

It's not as if MSCI does not understand the importance of adding A shares into its Emerging Markets Index in a timely fashion.

A consultation paper published on the index provider's website earlier this year trimmed the number of eligible mainland stocks from 448 previously to 169 in this year's index proposal, an indication that MSCI is making efforts to smoothen the decision-making. The shares in the shorter list are confined to large-cap companies that are accessible through stock connect links with Hong Kong and therefore are more likely to be accepted by global investors, as well as posing no challenge to China's current regulatory regime.

If A shares are included, their weighting would be only 0.5 percent of the index, but that could well be the thin end of the wedge and will help make the case for a stronger, more balanced global equity market.

Hopefully there won't be any unwanted surprises this summer. MSCI faces a test of its ability to integrate mainland stocks into the global capital market in a more pragmatic manner, and hopefully it won't fail the test this time.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn


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