MSCI Inc’s latest attempt to bridge the gap between China and global asset managers involves whittling down the number of shares that index tracking investors might be forced to own by more than half.
Only 169 mainland China-listed companies are to be considered for inclusion by benchmark gauges, down from 448 under a previous proposal, and all are to be large-cap shares currently accessible to foreign investors through exchange links with Hong Kong.
The weighting of A-shares, yuan-denominated stocks, would be just 0.5 percent of the MSCI Emerging Market Index, half the previous suggested level, a consultation paper published on MSCI’s Web site on Wednesday showed.
MSCI is surveying stakeholders for the fourth time on the merits of having members of China’s US$7 trillion equity market in its benchmark indexes. Previous efforts foundered on concerns over issues such as repatriation limits and excessive trading suspensions.
With Chinese officials signaling that they are in no rush to meet the last of the index compiler’s demands, MSCI’s less ambitious proposal has increased the chance of success, analysts said.
“It bodes well for the possibility of A-share inclusion,” Credit Suisse Group AG Hong-Kong based strategist Chen Li (陳李) said.
The likelihood of this happening in June has risen to “40 percent, compared with [an] earlier 20 percent,” given that it is “unlikely” China will lower capital controls for this, Chen said.
Under the latest proposal, the offshore yuan is to be used for index calculations, rather than the onshore currency, as previously suggested.
To address investor concerns over the relatively high number of A-share suspensions, stocks that have been halted for more than 50 days in the past 12 months would not be eligible, the statement said.
“This move will enhance the possibility for A-share inclusion,” Pegasus Fund Managers Ltd (東驥基金管理) managing director Paul Pong (龐寶林) said in Hong Kong. “Previously, one major concern was that it might be difficult to pull money out in a timely fashion.”
MSCI, compiler of one of the world’s most followed emerging-market indices, last year said that it would reconsider adding Chinese domestic shares in its review this year.
The rejection surprised analysts at many major banks, including Goldman Sachs Group Inc and Citigroup Inc.
Chinese shares traded in offshore markets such as Hong Kong and the US are already part of MSCI’s gauges.
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