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Friday, March 13, 2015, 18:06

MSCI faces opposition to China inclusion in index

By Reuters

HONG KONG - China must make bolder market reforms before Chinese-listed shares can be included in key MSCI emerging market benchmark indexes, leading global fund managers and MSCI insiders told Reuters.

Anticipation that MSCI would push ahead with plans to include locally-listed China 'A' shares in its Emerging Markets Index, which is tracked by US$1.7 trillion of funds, increased following the November launch of the Hong Kong-Shanghai Stock Connect trading scheme, which has helped open up China's tightly-controlled capital market.

But, despite strong lobbying by Beijing, some of the world's biggest fund managers want China to go further with its market reforms. That lack of support is likely to scupper Chinese hopes that global index compiler MSCI would add China-listed stocks at its annual review in June.

MSCI, too, is disappointed by a lack of progress on several issues that make it difficult and expensive to move money in and out of China's capital markets.

"In my view, most of those issues remain," said one MSCI insider who didn't want to be named because the subject is highly sensitive. "I'd be very surprised if we manage to get 'A' shares included even this time around going by the preliminary chats I've had."

Chinese shares listed overseas already account for 18.9 percent of MSCI's emerging markets index. Including all China's domestic shares could trigger the largest-ever global equity rebalancing, and drive up that figure to 27.7 percent. Some predictions suggest US$300 billion will eventually flow into the China market.

A spokeswoman for MSCI declined to comment. The China Securities Regulatory Commission (CSRC) did not respond to requests for comment. China's State Administration of Foreign Exchange, which controls investment quotas, also did not respond to requests for comment.

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