MSCI Inc said it welcomes China’s relaxing of restrictions on foreign funds amid the nation’s bid to gain entry for its markets into international stock benchmarks.
The index provider’s statement followed a decision earlier in the week by the Chinese State Administration of Foreign Exchange (SAFE) to no longer require applications for investment quotas from fund managers approved under its Qualified Foreign Institutional Investor program.
Maximum allocations would instead be linked to assets under management and subject to a ceiling of US$5 billion. Open-ended funds would also be able to shift money in and out of the nation’s stocks daily, policymakers said.
“MSCI sees the decisions to link the quota allocation process to the size of assets by international investors and to remove the need for a quota application as significant steps,” the company said in a statement on Friday in New York.
Starting early April, MSCI would “again actively seek feedback from the international investment community” to make a final decision in June this year, according to the statement.
Chinese authorities have been pushing for an MSCI endorsement as they seek to elevate the status of Chinese markets on the world stage and make the yuan a more international currency.
MSCI held off from adding China’s A shares to its benchmark indexes last year, opting to work with the nation’s securities regulator to overcome remaining obstacles, such as investor quotas and ease of access.
With these changes, “all major impediments to MSCI A share inclusion have now been removed,” analysts at Shanghai-based research firm Z-Ben Advisors (澤奔商務諮詢), wrote in a note on Friday before the MSCI statement.
Attracting foreign capital has taken on greater urgency in recent months amid record outflows, a weakening of the yuan and as local shares tumbled, though analysts cautioned that SAFE’s rule change is unlikely to attract major inflows any time soon and does not guarantee MSCI inclusion.
While the easing addresses some of the issues highlighted by MSCI, remaining curbs include limits on the repatriation of assets.
SAFE also said it retains the authority to adjust rules for outflows based on market conditions.
The previous cap on institutional investments was US$1 billion, although officials had already allowed that limit to be breached when they gave Fidelity Investments Management (Hong Kong) Ltd a US$1.2 billion quota last year.
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