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MSCI Again Considers Adding China Shares to Emerging-Market Index

23 Mar 2017 4:18 am
   By Gregor Stuart Hunter 

Index provider MSCI Inc. (MSCI) has kicked off its annual review to determine whether to add domestic Chinese shares to its global benchmarks, a step that could potentially divert billions of dollars of capital to Asia's biggest markets.

MSCI sent an updated consultation document to fund managers Wednesday after U.S. markets closed, according to documents reviewed by The Wall Street Journal.

The changes include a two-thirds reduction in the number of stocks to be included initially.

The index provider first consulted fund managers in 2014 on whether to include so-called China A-shares, or domestic listings denominated in onshore yuan, in its flagship emerging-market index. MSCI declined to include China's local-currency shares in June last year, citing difficulties accessing markets and concerns around stock suspensions.

China has since launched the Shenzhen Stock Connect, which allows global investors to directly buy stocks in the country's second-biggest stock market for the first time, reviving hopes that Chinese shares could be added this year.

China is the biggest domestic market not featured in MSCI's flagship indexes.

MSCI's emerging market, Asia and China benchmarks currently include mostly Hong Kong-listed shares and U.S. listings of companies like Alibaba Group Holding Ltd. (BABA).

Chinese stocks have been on a tear in recent months, with the MSCI China Index up 14.3% so far this year, outperforming both the Asia and emerging-market benchmarks.

Among MSCI's new proposals, 169 stocks will be included, down from 448 previously, representing only large-cap companies accessible through the Shanghai and Shenzhen Connect programs. Companies with equivalent Hong Kong listings already part of the MSCI China Index will be excluded. The offshore yuan, rather than its onshore counterpart, will be used for index calculation.

Stocks that have been suspended for more than 50 days will also be excluded. In 2015, more than one thousand listed companies suspended trading in their shares briefly when China's stock market crashed.

The rebalancing of indexes will be postponed if daily quota limits are triggered. The Stock Connect system limits the amount of daily flows into China to 26 billion yuan ($3.78 billion).

MSCI also said it is in discussions with Chinese exchanges to remove requirements on "new and pre-existing financial products" linked to China A-shares.

MSCI wasn't immediately available for comment.

Write to Gregor Stuart Hunter at gregor.hunter@wsj.com

(END) Dow Jones Newswires

March 23, 2017 00:18 ET (04:18 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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