Keep a close eye on China’s stockmarkets today, there could be a sharp fall ahead today after global market measurer, MSCI delayed the inclusion of China’s mainland A class shares in its emerging markets index.
MSCI had been widely expected to announced the staged inclusion of the A class shares after delaying a decision in 2015.
Even though China’s main markets are down 40% from their peaks in 2015, the combined value is still greater than Tokyo’s value and second only to the US, so it would be a significant decision for global investors.
MSCI said its decision was based on the need to see further market improvement in accessibility to foreign investors in China.
The decision will likely generate a critical reaction from Chinese authorities as many analysts had recently projected that Chinese financial authorities had largely met MSCI’s demands to allow more access to foreigners.
“There have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index,” said Remy Briand, MSCI global head of research, on Marketwatch.com.
But “International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion.”
The deferment decision in 2015 spared MSCI the embarrassment of including China just as the market was selling off in what turned out to be a market collapse that almost plunged the economy into recession as Chinese authorities struggled to control the slide.
In March of this year MSCI laid out a road map for Chinese inclusion, but it is clear from the decision and associated comments that MSCI feels China has still not done enough to reassure investor in the wake of the near collapse.
The Financial Times pointed out that "MSCI is the world’s largest index provider and its benchmark emerging markets index — in which A-shares would have made the most impact — are followed by an estimated $1.5tn of funds. Including A-shares would have added another link between China and the global financial system by forcing international fund managers to invest onshore.”
MSCI also said it will not reclassify Korea as a developed market for now.
