MSCI cushions China A-shares delay with regulator working group

[HONG KONG] Closer ties with China's regulator will accelerate the timeline for adding mainland stocks to global benchmark indexes, MSCI Inc said after deferring their inclusion for a second time.

The index compiler and the China Securities Regulatory Commission will form a group to discuss global investors' concerns about the accessibility of the world's second-biggest equity market, according to a statement from MSCI late Tuesday. It held off putting domestic A shares into its gauges, highlighting investment quotas, capital lockups and ownership rights as barriers for foreign funds.

MSCI is being "more transparent in what they are doing with the CSRC," William Chan, Hong Kong-based head of regional equity-derivatives research at Bank of America Corp.'s Merrill Lynch unit, said by phone. "They have been putting the ball back into CSRC's court in terms of what they need. It's now more clear for market participants."

The index compiler departed from its practice of reviewing market classifications once a year, saying its decision on China could come at any time.

Closer collaboration with the regulator will speed things up, Remy Briand, MSCI's global head of research, said on a conference call. Chinese authorities met with money managers in the US this year to make the case for MSCI inclusion, part of a broader effort to professionalise the stock market and boost the yuan's role in global finance.

"The working group is great in the spirit of specifically solving some of the remaining issues," said Chin Ping Chia, MSCI's Asia-Pacific head of research. "We are very confident that, by having a formalised working group process, we are going to be able to bring resolution to all these issues."

This is a new stage in MSCI's collaboration with the CSRC, Mr Chia said. There will be at least 12 months between any announcement of A shares' index inclusion and the implementation, according to Mr Briand.

"It's interesting to see how MSCI is working closely with the CSRC," said Catherine Yeung, investment director for equities at Fidelity Worldwide Investment. "The messaging seems to be that they're really dedicated to pursuing this in terms of the inclusion."

BLOOMBERG