Stock-index compiler MSCI's decision to defer inclusion of Chinese mainland-listed A-shares in its global benchmarks could be a catalyst for further reform.
Announcing the decision early Wednesday, MSCI said it "expects to include China A-shares" once "a few important remaining issues related to market accessibility have been resolved."
MSCI identified three issues it would discuss with regulators -- quotas for large investors, capital mobility and details of beneficial ownership -- and is willing form a working group with the China Securities Regulatory Commission (CSRC) to address the concerns.
WAITING AND HOPING
The delay is certainly a setback for China's financial markets, but there may be more silver lining than cloud.
China International Capital Corp. (CICC), the country's leading investment bank, described the decision as being in line with market expectations and suggested that inclusion would probably come in 2016.
Last month, an MSCI competitor, the FTSE Group, included China's A-shares in two new transitional indexes for emerging markets, and last week the Vanguard Group, the largest U.S. provider of mutual funds, added the A-shares to its emerging-markets fund.
The A-share market was nonplused by MSCI decision and the benchmark Shanghai Composite Index ended down slightly. The Shenzhen Component Index gained 1.6 percent.
Brendan Ahern, chief investment officer at Krane Fund Advisors, does not believe the issues raised are insurmountable. "They won't wait until the 2016 review [...] It will happen sooner," Ahern told Bloomberg.
The Shanghai-Hong Kong Stock Connect, which was launched last November, allows investors from both sides to trade selected stocks on either exchange. A similar program will link Hong Kong-Shenzhen later in the year.
