The chances of an off-cycle decision for A-shares to be included in MSCI’s Emerging Markets Index has increased after the index provider launched 20 new China equity indices on September 29 and praised Beijing’s recent reform efforts.
The Shenzhen-Hong Kong Stock Connect Scheme was officially given the go ahead by China’s State Council on Tuesday, with the Hong Kong Securities and Futures Commission (SFC) making the breakthrough announcement that the entire Stock Connect scheme will now operate without aggregate trading quotas. Exchange traded funds (ETFs) and derivatives are due to come in future expansions.
The recent opening of the China interbank bond market (CIBM) gives many global investors the widest access to the onshore fixed income market so far. Yet the entry of Chinese bonds into global indices remains a tricky proposition, according to market participants.
MSCI Review 2016
Markets may have shrugged off MSCI’s decision not to include A-shares in its latest review but it proved to be more of a shock to some of the major investment banks which had forecast inclusion as the most likely outcome.
MSCI has once again highlighted the inability for foreign investors to move money freely in and out of China as a reason for leaving A-shares out of its Emerging Market Index. While the world’s second largest economy has moved quickly to reform other parts of its financial sector, market participants are divided about whether China will budge on capital controls.
Index provider MSCI has surprised markets by once again delaying the inclusion of A-shares in its Emerging Markets index. While some progress has been made, China still has more work to do to tackle concerns around repatriation and restrictions on launching financial products linked to onshore exchanges, the firm said on June 14.
MSCI’s decision to not include China A-shares into its Emerging Market index drew little reaction with both the currency and the major stock indices holding up well during Wednesday trading.
While opinions range on how appropriate it will be for MSCI to go ahead with the inclusion of A-shares into its global benchmarks, the index provider has been giving greater space to US-listed Chinese stocks. But despite the decision on A-shares being just over a week away, market participants are still weighing the pros and cons.
MSCI A-share inclusion roadmap
MSCI completed its latest review of its Emerging Market indices in June 2016 and for a third time refused to include China A-shares.
The index provider said that while some progress has been made, institutional investors still had plenty of concerns about restrictions on taking money out of the country and the approval process for A-share linked financial products.
Any decision will now be part of the 2017 review. However MSCI did leave open the possibility of an “off-cycle announcement” if Chinese regulators address its concerns.
Click below to access MSCI documents on its justification for the delay in 2016 and its 2015 review.
Much of the debate around MSCI’s decision to not add A-shares has focused on China’s need to reduce its capital controls. But with Beijing unlikely to let go of the reins anytime soon and MSCI strident in its need for reform, the two sides have reached an impossible impasse unless a compromise can be made.
Index firm MSCI said on June 14 that it was once again delaying the inclusion of Chinese A-shares in its emerging market index. Here is GlobalRMB's quick guide to what you need to know.
Restrictions on launching A-share linked financial products is one of the remaining hurdles for Chinese equities joining the MSCI. But as solving the issue will require China to relinquish more capital controls, there is unlikely to be a swift conclusion.
The China Securities Regulatory Commission (CSRC) has confirmed that authorities will respect the beneficial ownership right of foreign investors, crossing another item off the to-do list for A-shares to be included global indices.
The Shanghai Stock Exchange (SSE) published guidelines for future stock suspensions by mainland-listed companies, removing another roadblock to the inclusion of A-shares in the MSCI indices.
BNP Paribas and S&P Dow Jones Indices (SPDJI) launched a new index focusing on what it calls the “new China” economic sectors. A-shares, which could be included later this year in the MSCI emerging markets indices, make up a quarter of the new benchmark.
Index provider FTSE Russell announced on Wednesday a new index which combines for the first time the China A-shares and Hong Kong-listed H-shares of the 50 largest Chinese companies.
The Chinese circuit breaker mechanism shut down stock trading for the second time in just four days on January 7. Despite the 12% drop in the Shanghai Composite Index (SHCOMP) since end of 2015, Macquarie expects MSCI to finally green light A-shares inclusion for its popular global stock indices in June.
The inclusion of A-shares in institutional investors' portfolios is inevitable, although the process will be a gradual one for index providers, exchanges and money managers, FTSE Russell chief executive Mark Makepeace has told GlobalRMB.
China's recent stock market volatility has made some international investors more jittery about putting their money to work in the country's domestic markets, but it is not putting everyone off increase their exposure to Chinese assets.
Index provider MSCI announced on June 9 that A shares inclusion in the indices will happen as soon as Chinese regulators address outstanding market access issues, with quota allocations as the most pressing of them.
Global asset manager Vanguard has followed up the decision by FTSE Russell to begin including Chinese A-shares in its emerging markets indices with an announcement on June 2 that it will give A-shares an initial 5.6% weighting in its Vanguard Emerging Markets Stock Index Fund.
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Latest news by market and league table performance
GlobalRMB Panda Bonds league table
|Rank||Arranger||Share % by Volume|
|1||Bank of China (BOC)||28.62|
|3||China CITIC Bank Corp||9.72|
|4||China Merchants Bank Co||9.18|
|5||Industrial and Commercial Bank of China (ICBC)||7.56|
Panda Bond Database
|Pricing Date||Issuer||Country||Size Rmb (m)|
|1||12-Jan-18||Mitsubishi UFJ Financial Group (MUFG)||Japan||1,000|
|4||22-Nov-17||Province of British Columbia||Canada||1,000|
Offshore RMB Bond Top Bookrunners
|Rank||Bookrunner||Share % by Volume|
|1||Standard Chartered Bank||55.56|
|2||Mitsubishi UFJ Financial Group (MUFG)||22.22|
Latest Offshore RMB Bonds
|Pricing Date||Issuer||Country||Size Rmb (m)|
|1||17-Jan-18||IL&FS Transportation Networks||India||100|
|2||10-Jan-18||IL&FS Transportation Networks||India||900|
|4||30-Nov-17||Ministry of Finance of the People's Republic of China (MoF)||China||7,000|
|5||15-Nov-17||Bank of China Paris Branch (BOC Paris)||China||1,000|