Investor concerns nix China A-shares from entering MSCI index
US index company MSCI announced changes to its many indices on Thursday and just like last year, China’s A-shares were not added to the widely followed MSCI Emerging Market Index.
Chinese news agency Caixin spoke with institutional investors and others involved with the process to understand what’s going on. Caixin reported that MSCI consulted institutional investors on whether to include mainland Chinese stocks in its Emerging Market Index. The Emerging Market Index serves as the benchmark for the pricing of assets worth US$1.5 trillion worldwide
The institutional investors said their biggest concern was the arbitrary trading suspensions that Chinese firms can exercise, sources with knowledge of the matter said. They also cited low investment quotas and restraints on capital mobility.
The current regulations allow companies to suspend trading quickly after issuing a brief notice. They can claim pending issues such as the sale of additional stocks or an asset restructuring. They can also resume trading quickly, saying negotiations have failed without giving investors further details.
While the exchanges normally limit trading halts to three months, in practice, many firms can request the suspensions be extended.
Investors believe that during last summer’s stock market rout many companies took advantage of the lax trading rules to stop investors from dumping their shares
Recently, China Vanke, the country’s largest residential property developer by sales, suspended trading of its shares in both Hong Kong and Shenzhen on Dec. 18, saying it needed to restructure its assets. This suspension was allegedly triggered by what the firm’s management said was a hostile takeover.
The investors MSCI talked to were concerned that such suspensions would affect their liquidity, the sources said.
MSCI said it was working with the China Securities Regulatory Commission (CSRC) to resolve these issues. Chinese stock exchanges have been working to improve their rules to prevent companies from abusing trading suspensions, sources familiar with the situation said.