Index provider MSCI has proposed the launch of the China A International Index to provide an additional tool for investors to access the A-shares markets of Shanghai and Shenzhen.
At the same time, MSCI says that China’s A-shares will not be included in its MSCI Emerging Markets Index as part of the most recent market reclassification.
However, Chinese A-shares will remain on the review list for next year’s reclassification.
The index provider says this decision is based on feedback highlighting remaining investability constraints linked to the cross-border schemes that facilitate money moving in and out of the country.
Foreign investors can only invest in Chinese A-shares with a quota under the qualified foreign institutional investor (QFII) and the renminbi qualified foreign institutional investor (RQFII) schemes.
However, small quotas, a short time to use them up, and tax uncertainty have left many investors disillusioned.
Rex Wong, managing director of BNY Mellon's Asia asset servicing business, says MSCI’s decision reflects the current regulatory regime that allows only those asset managers with a QFII or RQFII designation to invest in the A-shares market.
However, Wong says MSCI has also recognised the need to provide investors with additional tools to gain exposure to China’s domestic securities market.
Wong says the proposed China A International Index is a step in that direction.
He adds: “As China liberalises its regulations to expand foreign investment into its securities market, we will see more such indexes and related investment products come into existence.”
Hong Kong-based Peng Wah Choy, chief executive of Harvest Global Investments, told Funds Europe’s sister publication Funds Global Asia in September last year that the inclusion of Chinese A-shares in broader emerging market indices would be a significant business opportunity.
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