MSCI Inc. is forming a working group with Chinese securities regulators to hammer out plans to add China A-shares to its indices in the coming years, the New York City based company announced on Wednesday.
The index provider will form a working group with the China Securities Regulatory Commission (CSRC) to resolve any issues that may prevent the inclusion of China A-shares in its global benchmarks.
In particular, “a few important remaining issues related to market accessibility” have to be resolved before it can add the A-shares to its indexes, MSCI says.
Those concerns include the quota allocation process, capital mobility restrictions, and beneficial ownership of investments, MSCI says. It intends to engage with the CSRC to try and resolve those issues in the coming months.
Chinese authorities have made progress toward opening their markets to the rest of the world, MCSI observes, including the launch of the Shanghai-Hong Kong Stock Connect program, the imminent launch of the Shenzhen-Hong Kong Stock Connect program, and the clarification of the capital gains tax.
“Substantial progress has been made toward the opening of the Chinese equity market to institutional investors,” says Remy Briand, managing director and global head of research at MSCI.
“In our 2015 consultation, we learned that major investors around the world are eager for further liberalization of the China A-shares market, especially with regard to the quota allocation process, capital mobility restrictions and beneficial ownership of investments.”
A decision to include China A-shares in the MSCI Emerging Markets Index may be announced as soon as the issues outlined by the firm are resolved, MSCI says.
“Because MSCI’s client base is so large and diverse, we have a strong interest in ensuring that remaining issues are addressed in an orderly and transparent way,” Briand says.
“We look forward to a fruitful collaboration that will contribute to the further opening of the China A-shares markets to international investors and the inclusion in the MSCI Emerging Markets Index.”
In addition, the company will consider the MSCI Pakistan Index for a potential reclassification as an emerging market, MSCI says.
It will also seek feedback from international institutional investors on the accessibility of the Saudi equity market before considering whether to add the MSCI Saudi Arabia Index to the MSCI Emerging Markets Index.