MSCI Inc. (NYSE: MSCI), a leading provider of research-based
indexes and analytics, is pleased to announce today the successful
completion of the third and final phase of the 20% partial
inclusion of China A shares in the MSCI Indexes, including in the
MSCI Emerging Markets Index.
As of the close of markets on November 26, 2019, the MSCI
Indexes will include 472 China A shares, comprised of 244 large cap
and 228 mid cap securities. The weight of China A shares in the
MSCI ACWI and MSCI Emerging Markets Indexes will reach 0.5% and 4%,
respectively. The MSCI China Index, which includes China A shares
and offshore listed shares, will include 710 securities
representing 4% and 34% of the MSCI ACWI and MSCI Emerging Markets
Indexes, respectively.
As previously stated, any further inclusion of China A shares in
the MSCI Indexes would follow a public consultation and be reviewed
against the progress made towards addressing the remaining market
reforms highlighted by international institutional investors.
During MSCI’s most recent public consultation on China A inclusion1
investors stressed the need to resolve the following concerns ahead
of consideration of further inclusion:
- Access to hedging and derivatives instruments:
International institutional investors require liquid on and
offshore index futures and options contracts in order to expand
their allocation to China and manage their increased exposure.
Index futures and options contracts are critical risk management
tools for global investors, particularly for complex, deep and
varied equity markets such as in China.
- Short settlement cycle for China A shares: International
institutional investors have highlighted that they continue to face
significant operational challenges and risks in dealing with the
short settlement cycle of China A shares. China currently operates
on a T+0/T+1 non-Delivery versus Payment (non-DVP) settlement
cycle. Most markets in the MSCI ACWI operate currently on a T+2/T+3
DVP settlement cycle.
- Trading holidays of Stock Connect: International
institutional investors are concerned with the misalignment between
onshore China and Stock Connect holidays. Given that most global
institutional investors currently rely on Stock Connect as the
primary access channel for China A shares, it is important that the
current trading holiday arrangement be reviewed to minimize
unnecessary investment frictions.
- Availability of Omnibus trading mechanism in Stock
Connect: Many large fund managers and broker dealers have
highlighted the pressing need for a well- functioning omnibus
mechanism. The ability to place a single order on behalf of
multiple client accounts is critical to facilitate best execution
and lower operational risk to international institutional
investors.
MSCI will launch a public consultation on further inclusion of
China A shares in MSCI Indexes only after all the above-mentioned
concerns have been addressed by the Chinese authorities in order to
continue to facilitate international investment.
About MSCI
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With over 45
years of expertise in research, data and technology, we power
better investment decisions by enabling clients to understand and
analyze key drivers of risk and return and confidently build more
effective portfolios. We create industry-leading research-enhanced
solutions that clients use to gain insight into and improve
transparency across the investment process. To learn more, please
visit www.msci.com.
_________
1 MSCI conducted a public consultation on
the increased weighting of China A Shares in MSCI Indexes from
September 2018 – February 2019.
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