The odds of Chinese stocks winning inclusion to MSCI Inc’s global indices this month have shot up to 70 percent with the government’s efforts to curb trading halts and clarify beneficial ownership rules, Goldman Sachs Group Inc said yesterday.
These steps have addressed two of the five issues flagged by MSCI in April regarding the inclusion of A-shares, Goldman economists led by Kinger Lau (劉勁津) wrote in a note.
They added that China would now need to deal with the remaining concerns of a 20 percent monthly fund repatriation limit, anti-competitive clauses on index products and daily quota limits on a cross-border stock program.
Goldman, which had in April put the probability of inclusion at 50 percent, also flagged the importance of China starting an equity link between Hong Kong and Shenzhen.
“These moves are clearly positive,” the Goldman economists wrote.
“Additionally, we believe the conditional probability for a ‘Yes’ in June would be materially higher if the Shenzhen-HK Connect were to be announced,” they wrote.
China’s stocks jumped the most in almost three months amid the inclusion speculation, with the Shanghai Composite Index closing 3.3 percent higher. Gauges of telecommunications and technology companies led gains for industry groups.
With an estimated US$16 billion of investment flows at stake, Chinese regulators are pushing for the nation’s US$5.6 trillion stock market to be included in MSCI’s global benchmarks.
In February, the country’s foreign-exchange regulator issued rules making it easier for overseas investors to shift money out of the nation and apply for investment quotas.
REGULATORY CHANGES
The index compiler said in March a decision to include 5 percent of yuan-denominated shares in its index would depend on regulators implementing changes so that widespread halts cannot happen again.
About 311 companies on the Shanghai and Shenzhen exchanges are still suspended or halted, representing about 10 percent of the market, data compiled by Bloomberg showed.
The Shanghai and Shenzhen bourses last week said that suspensions would be capped at three months for major asset restructuring and one month during private placements.
The exchanges have the right to reject trading-halt applications under extreme market circumstances to protect investors, they added.
On May 6, the China Securities Regulatory Commission said regulators recognize and respect the rights and interests of so-called “beneficial owners of securities.”
The interests of foreign beneficial owners are protected by the legal contract between them and their nominees, it added.
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