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Stocks gain as liquidity concerns eased

20 June 2017

"The probability of the inclusion of A-shares in MSCI has increased this year, although initial weighting will likely be small", Ulrich said.

The appeal of China's capital market is hard to ignore. One can buy stocks of American companies doing a lot of business in China (think Yum Brands & its KFC business), or buy shares of Chinese companies trading on USA stock exchanges (and thus, subject to American security laws and regulations).

MSCI has rejected A shares repeatedly on concerns over accessibility for worldwide investors, restrictions on repatriation of capital, and licensing restrictions imposed by Chinese authorities for A-share index products in overseas markets.

Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission. "But regardless of the result, the direction and pace of China's capital market reform and opening up will not change", he said at a press conference.

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For the country's stock market, while it still has a long way to go before matching the developed markets, its value of investment is undeniable as it provides the opportunity of trading the shares of some of the world's fastest-growing and most promising companies.

Ning Jing, a portfolio manager at Fidelity International, confirmed that the long-awaited inclusion of A-shares in the MSCI would help institutionalize the A-share market.

Therefore, I do not expect a large market impact from the decision to be made by the MSCI Index committee.

Moreover, a string of reforms since 2016 have dispelled much of the concerns of global investors over the A-share market's accessibility.

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The CSI300 index was unchanged at 3,552.56 points at the end of the morning session, while the Shanghai Composite Index gained 0.1 percent, to 3,146.25 points. "In the case of a "No" decision: The A-share market might first react with a minor decline of 1.0 per cent", Morgan Stanley said in a recent report.

"These programs are essential in paving the way for Chinese equities and bonds to be included in major global indices", she added. The assimilation of China into the global financial market is in the interests of both China and the rest of the world.

However, some investors appear retreating just ahead of the MSCI announcement, exchange-traded fund (ETF) data suggests.

UBS Wealth Management earlier last week said there could be a less than 50 per cent chance for A shares to get approved this time around given the biggest remaining hurdle - the required CSRC approval for foreign institutions to launch any A-share linked derivative in overseas markets.

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Stocks gain as liquidity concerns eased