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United States : Results of MSCI 2017 Market Classification Review.

MSCI Inc., a leading provider of global equity indexes, announced today that beginning in June 2018, it will include China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index. This decision has broad support from international institutional investors with whom MSCI consulted, primarily as a result of the positive impact on the accessibility of the China A market of both the Stock Connect program and the loosening by the local Chinese stock exchanges of pre-approval requirements that can restrict the creation of index-linked investment vehicles globally.

Consequently, MSCI plans to add 222 China A Large Cap stocks, representing on a pro forma basis approximately 0.73% of the weight of the MSCI Emerging Markets Index at a 5% partial Inclusion Factor. A two-step inclusion process will be used to account for the existing daily trading limits on Stock Connect. The first inclusion step would coincide with the May 2018 Semi-Annual Index Review followed by the second step which would take place as part of the August 2018 Quarterly Index review.

MSCI reserves the right to revise the planned implementation to a single phase should the daily limit on Stock Connect be abolished or significantly expanded before the scheduled inclusion dates. MSCI will start to calculate a number of MSCI Provisional Indexes as part of the MSCI ACWI Index Series that include China A shares. These indexes serve to manage the implementation of the inclusion of China A shares in investors portfolios on the schedule of their choosing.

In particular, MSCI will launch the MSCI China A International Large Cap Provisional Index on June 21, 2017, followed by additional global and regional provisional indexes, including the MSCI China and MSCI Emerging Markets Provisional Indexes, in August 2017.

International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion. said Remy Briand, MSCI Managing Director and Chairman of the MSCI Index Policy Committee. The expansion of Stock Connect has been a game changer for the market opening of China A shares. Mr. Briand added, When further alignment with international market accessibility standards occurs, sustained accessibility is proven within Stock Connect and international institutional investors gain further experience in the market, MSCI will reflect a higher representation of China A shares in the MSCI Emerging Markets Index. MSCI is very hopeful that the momentum of positive change witnessed in China over the past years will continue to accelerate.

MSCI performed an extensive and in-depth cross-regional consultation on the potential partial inclusion of China A shares in the MSCI Emerging Markets Index. This global consultation included a large number of asset owners, asset managers, broker/dealers and other market participants. International institutional investors welcomed the expansion of Stock Connect and viewed it as a more flexible access framework compared to the current QFII and RQFII regimes. They also welcomed the decrease in the number of suspended China A shares, but continue to view the number of suspensions as an outlier compared to other international markets. Investors encouraged the Chinese authorities and exchanges to consider additional measures to address the issue of suspensions. The proposal to include Large Cap shares that are not in trading suspension was approved by the vast majority of institutional investors. Additionally, many of them also recommended that MSCI include China A Large Cap shares of companies that already have H share equivalents in the MSCI China Index. Hence, MSCI has amended its original proposal to include all China A Large Cap shares accessible through Stock Connect that are not excluded due to trading suspension. This change to the original proposal brings the number of China A shares in the pro forma MSCI Emerging Markets Index from 169 to 222. During the consultation, many institutional investors requested guidance on the future inclusion road map for China A shares. MSCI announced today that further inclusion will be subject to a greater alignment of the China A shares market with international market accessibility standards, the resilience of Stock Connect, the relaxation of daily trading limits, continued progress on trading suspensions, and further loosening of restrictions on the creation of index-linked investment vehicles.

A subsequent inclusion of China A shares in the MSCI Emerging Markets Index could potentially include an increase of the currently announced 5% Inclusion Factor as well as the addition of China A Mid Cap shares. MSCI will continue to monitor the situation and launch a public consultation to solicit feedback from investors once warranted. In todays announcement, MSCI also said that it will include the MSCI Saudi Arabia Index in its 2018 Annual Market Classification Review for a potential inclusion in the MSCI Emerging Markets Index. MSCI also announced today that the MSCI Argentina Index will not be reclassified to Emerging Markets status, as investors expressed concerns that the recently implemented market accessibility improvements, including the removal of capital controls and FX restrictions, needed to remain in place for a longer time period to be deemed irreversible. Consequently, the MSCI Argentina Index will remain on the review list as part of the 2018 Annual Market Classification Review. Additionally, the decision on the potential removal of the MSCI Nigeria Index from the MSCI Frontier Markets Index has been delayed to November 2017 to allow more time for international institutional investors to better assess the effectiveness of the new FX trading window introduced by the Central Bank of Nigeria. Finally, MSCI today released the 2017 Global Market Accessibility Review for the 84 markets under its coverage.

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Publication:Mena Report
Geographic Code:9CHIN
Date:Jun 22, 2017
Words:948
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