More transparent and steady market governance still needed after MSCI inclusion

By Xiao Xin Source:Global Times Published: 2017/6/21 22:53:39

MSCI inclusion good news for China’s A-share market, but more efforts still needed

It is perhaps too early to crack open the champagne, even though China has finally got the long sought-after nod of approval from MSCI to add mainland shares to its emerging markets index.

The decision was announced early on Wednesday morning, Beijing time, and is expected to encourage deeper efforts by China to align its equity market with international markets.

In a statement announcing its decision, the New York-based index provider highlighted positive changes in the accessibility of yuan-denominated shares - referring especially to the implementation of the stock connect system - which have been embraced by international institutional investors and underpin the long-awaited decision.

Nevertheless, while the announcement came in stronger than expected with the number of mainland stocks eligible for MSCI inclusion rising to 222 from the 169 suggested in this year's index proposal, it didn't give much of a boost to Chinese shares on Wednesday. The Shanghai Composite Index and the Shenzhen Component Index closed the day up 0.52 percent and 0.76 percent, respectively, while the Hang Seng Index fell by 0.57 percent.

The lukewarm reception indicates lingering concerns over the outlook for the A-share market. The mainland stock market rout in 2015 was followed by a slew of efforts aimed at cracking down on unlawful trading activities and market malpractices. These efforts strengthened the belief that the Chinese authorities will unswervingly press ahead with securities and financial market reforms, but there is still unease about potential market turbulence ahead.

The inclusion of 222 mainland large-cap stocks, many of which are State-owned firms, is a promising start, but the A-share market comprises over 3,000 companies and is still far from being a truly internationally recognized market. Global investors are intrinsically more wary of potential pitfalls in the mainland stock market, partly because of China's capital controls and the fact that the regulatory framework for the equity market is still incomplete. To ensure greater confidence among these global investors, there will need to be greater efforts to bring stability and more order to the market.

Increased accessibility certainly readies A shares for global prominence, but it is a transparent and steady market governed by the law that will truly set global investors' minds at ease.

As such, more actions to ensure this are in the pipeline. Otherwise people might believe that China has simply shoehorned itself into one of the world's most-followed emerging market indexes.

The author is a reporter with the Global Times.
Newspaper headline: MSCI inclusion good news for China’s A-share market, but more efforts still needed


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