MSCI Delays China A-Shares Inclusion In Key Indexes

MSCI Inc. (NYSE:MSCI) declared on Tuesday that it has delayed the inclusion of China A shares in its benchmark emerging market index.

This is the third year in a row that the index firm has shattered China’s dream to join international markets.

Reasons Cited

MSCI cited investor concern over transparency and openness of Chinese markets as the main reason behind this decision.

The index provider stated that the 20% limit on monthly takeouts and probable new controls during the next market selloff are bothering investors.

Managing director and global head of research at MSCI, Remy Briand, said that "International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index.”

China’s Efforts

In the last few months, Chinese regulators have put up some notable efforts to address concerns of the global investing community and have received appreciation from MSCI as well.

They have set a maximum period of stock halts at three months. Questions regarding foreign investors owning Chinese shares have been cleared. The Chinese authorities confirmed that they do own such shares even though they are held by local asset managers.

The authorities also added that foreign investors will be able to invest adequately depending on the size of the firm and can get their money out without much fuss.

Dreams Shattered

China was hoping to tap $1.5 trillion in assets benchmarked to MSCI’s flagship emerging market index. However, it appears that according to MSCI, China is still not ready for the prime time,

The world’s second largest economy is in desperate need for foreign investments. Such investments have become essential in order to check market volatility, institutionalize the onshore market and broaden the investor base.

The inclusion would have definitely been good news for the Chinese economy, which had a torrid run this year. This would have injected investments into this sagging economy, eventually putting a ceiling to market volatility and fulfilling its need for foreign investments. Inclusion by MSCI could have fueled demand for Chinese companies.

Currently, MSCI is a Zacks Rank #2 (Buy) stock. Other stocks worth considering are IntraLinks Holdings, Inc. (NYSE:IL) , RealPage, Inc. (NASDAQ:RP) and SYNNEX Corp. (NYSE:SNX) each carrying the same Zacks Rank as MSCI.