Has China’s securities regulator done enough to get MSCI to say yes?

Has China’s securities regulator done enough to get MSCI to say yes, or is this a case of too little too late?

MSCI, the New York-based index giant, will tell the world on Tuesday if it’s going to include Chinese A-shares in its global benchmark, the MSCI Emerging Markets Index, which is tracked by $1.5 trillion in assets globally

msci-480After 2015’s disappointing “no” vote, which many feel helped spark last summer’s stock market rout, China Securities Regulatory Commission’s (CSRC) new Chairman Liu Shiyu has spent the past four months doing everything he can to woo the global benchmark providers.

If he succeeds in getting yuan-denominated shares — or A shares — into the widely used index, it could bring $400 billion into the mainland market in the next decade, MSCI estimates show.

While China has met some of MSCI’s key requirements, other concerns remain unaddressed, people familiar with the discussions said. This means no one really knows which way the widely anticipated decision will go.

When last June’s “no” vote came down, MSCI told China that it needed to increase access to its equity markets and fix other rules. However, the Chinese authorities intervention in the stock market during the summer crash and the suspension of trading in more than half the Chinese stocks did little to help the situation and probably hurt China’s case.

Since Shiyu’s appointment, the CSRC has satisfied two of MSCI’s key demands; introducing restrictions on company share suspensions and clarifying the beneficial ownership rights of foreign investors under China’s cross-border investment schemes.

Even if investors are worried about inclusion, investment banks, such as Goldman Sachs, more bullish. Goldman in May said there was a 70% percent chance MSCI would add the shares to the index.

However, one big problem is that the CSRC is not the only relevant party. The PBOC and the State Administration of Foreign Exchange control the size of investment quotas and have played a central role in liberalizing the country’s $81 billion Qualified Foreign Institutional Investor (QFII) scheme and its yuan equivalent, RQFII. So far, they have not been as accommodating.

Stay tuned here for tomorrow’s decision.



Categories: Asia Unhedged, China

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