MSCI says domestic China shares still not ready for its global benchmark

Wed Jun 15, 2016 2:35am EDT
 
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By Michelle Price

HONG KONG (Reuters) - China has failed again to convince U.S. index provider MSCI Inc to add local Chinese shares to its key emerging market index, and the company could not say when it was likely to give the green light, as global investors raised fresh objections.

The index company said on Tuesday that China still had to do more to make its markets accessible to foreign investors.

That is a blow for Chinese policymakers who have rushed to address MSCI's concerns over the past six months in the hope that inclusion in the Emerging Markets Index, tracked by $1.5 trillion in global assets, could draw up to $400 billion into China's stocks over the next decade.

Chinese shares seemed to shrug off the news, however, rising more than 1 percent in morning trade.

Market-watchers and analysts said the surprise decision, the third year running it has said no, highlighted reservations among global institutional investors about yuan-denominated assets and Beijing's commitment and ability to implement capital markets reform.

China's markets have had a turbulent 12 months, with a 40 percent crash in stocks, followed by heavy state intervention and an unprecedented exodus of capital that has put pressure on the Chinese currency.

"The decision highlights a much bigger issue, which is the resistance among global investors to allocate into yuan assets, despite the fact China is home to the world's second-largest equity market and third-largest bond market," said Peter Alexander, CEO of investment consultancy Z-Ben Advisors in Shanghai.

He added that the decision put global investors "on the wrong side of history".   Continued...

 
An investor looks at an electronic screen showing stock information at a brokerage house in Nanjing, Jiangsu Province, China, May 9, 2016. China Daily/via REUTERS