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25-04-2014, 09:35 AM
PUBLISHED APRIL 25, 2014
Investors snub MSCI plan for China stocks
It is proposing to include yuan- denominated A shares in its indices
MSCI's proposal to include mainland Chinese equities in its global indices is getting a cold reception from investors - PHOTO: REUTERS
'To put them in an index when most of the investors can't buy those shares, because of the various restrictions . . . doesn't make sense.'
- Mr Mobius
[SINGAPORE] MSCI's proposal to include mainland Chinese equities in its global indices is getting a cold reception from investors.
Fidelity Worldwide Investment calls it crazy. Schroder Investment Management says that it's terrible. Societe Generale's private-banking unit dubs it unfair.
While China is opening up its capital markets as part of the most sweeping economic overhaul in two decades, the reaction to MSCI's plan shows how much more President Xi Jinping needs to do before the country can be integrated into global markets. International investors who measure their returns against MSCI indices say that the proposal is unworkable unless China removes the capital controls that limit access to local securities.
"To put them in an index when most of the investors can't buy those shares, because of the various restrictions that the Chinese have, doesn't make sense," Mark Mobius, who oversees about US$50 billion as executive chairman of Templeton Emerging Markets, said in an April 7 interview on Bloomberg Television.
MSCI, whose gauges are used by money managers with an estimated US$8 trillion of assets, has been consulting with banks and funds on whether to include yuan-denominated A shares in its benchmark Chinese and developing-nation indices starting next year.
MSCI plans to include the proposal in its 2014 review of market classifications, to be announced in June. The index provider would probably contact between 2,000 and 3,000 global investors before deciding whether to include A shares, Chia Chin-ping, a Hong Kong-based managing director at MSCI, said last month.
Mr Chia said separately on April 17 that no decision has been made and MSCI "fully expects" investors to express different views on the "complex" issue.
The MSCI China Index, largely composed of mainland companies listed in Hong Kong, has lost 7.1 per cent in the past four years, compared with a 31 per cent drop for the benchmark Shanghai Composite Index. The MSCI gauge fell 0.2 per cent at 10.01am in Hong Kong yesterday, while the Shanghai measure slid 0.3 per cent, heading for its lowest level in about three weeks.
Under China's existing rules, only overseas institutions that have been awarded licences and quotas by two different regulatory bodies can invest in A shares. The combined approved quota of about US$86 billion is less than 3 per cent of the US$3.3 trillion market value of locally-listed companies.
It's a "terrible idea because you haven't got the liquidity or the accessibility", Allan Conway, head of emerging-market equities at Schroder, said on April 9 in London. "There's only a certain percentage of those shares that foreigners can buy. There's a quota. You have to buy a quota to even get the exposure to begin with, so you've got very limited accessibility."
Quotas issued under the Qualified Foreign Institutional Investor programme, known as QFII, total about US$54 billion, while 201 billion yuan (S$40.49 billion) of quotas have been doled out under the Renminbi Qualified Foreign Institutional Investor programme, or RQFII, according to the State Administration of Foreign Exchange.
QFII allows dollars to be used for stock and bond investments in the local currency, while RQFII enables offshore yuan to be invested in China.
"If the A-share market does well and foreigners can't take part in this, then it would be unfair," David Poh, the Singapore-based regional head of portfolio-management solutions at the private-banking unit of Societe Generale, which had about US$116 billion under management as at December, said on April 4.
Adding China's domestic shares to MSCI indices would expose investors to a wider range of companies in the world's fifth-biggest equity market. The MSCI China index has 140 stocks, data compiled by Bloomberg show. That compares with about 1,000 in the Shanghai Composite and more than 1,600 in the Shenzhen Composite Index. The move may lure about US$12 billion to the indices, MSCI's Mr Chia said.
"I am in favour of including A shares to the MSCI indices," Robbert Van Batenburg, a director of market strategy at Newedge Group in New York, wrote in response to questions on April 2. "It will however be a very gradual inclusion and presumably contingent upon further liberalisation of the A-shares market."
The number of members in the MSCI China index would increase to 385, with 221 A-share companies being added, according to MSCI's March statement. The weighting of A shares would initially be 2.9 per cent due to the difficulty of investors obtaining quotas, MSCI said. - Bloomberg
Investors snub MSCI plan for China stocks
It is proposing to include yuan- denominated A shares in its indices
MSCI's proposal to include mainland Chinese equities in its global indices is getting a cold reception from investors - PHOTO: REUTERS
'To put them in an index when most of the investors can't buy those shares, because of the various restrictions . . . doesn't make sense.'
- Mr Mobius
[SINGAPORE] MSCI's proposal to include mainland Chinese equities in its global indices is getting a cold reception from investors.
Fidelity Worldwide Investment calls it crazy. Schroder Investment Management says that it's terrible. Societe Generale's private-banking unit dubs it unfair.
While China is opening up its capital markets as part of the most sweeping economic overhaul in two decades, the reaction to MSCI's plan shows how much more President Xi Jinping needs to do before the country can be integrated into global markets. International investors who measure their returns against MSCI indices say that the proposal is unworkable unless China removes the capital controls that limit access to local securities.
"To put them in an index when most of the investors can't buy those shares, because of the various restrictions that the Chinese have, doesn't make sense," Mark Mobius, who oversees about US$50 billion as executive chairman of Templeton Emerging Markets, said in an April 7 interview on Bloomberg Television.
MSCI, whose gauges are used by money managers with an estimated US$8 trillion of assets, has been consulting with banks and funds on whether to include yuan-denominated A shares in its benchmark Chinese and developing-nation indices starting next year.
MSCI plans to include the proposal in its 2014 review of market classifications, to be announced in June. The index provider would probably contact between 2,000 and 3,000 global investors before deciding whether to include A shares, Chia Chin-ping, a Hong Kong-based managing director at MSCI, said last month.
Mr Chia said separately on April 17 that no decision has been made and MSCI "fully expects" investors to express different views on the "complex" issue.
The MSCI China Index, largely composed of mainland companies listed in Hong Kong, has lost 7.1 per cent in the past four years, compared with a 31 per cent drop for the benchmark Shanghai Composite Index. The MSCI gauge fell 0.2 per cent at 10.01am in Hong Kong yesterday, while the Shanghai measure slid 0.3 per cent, heading for its lowest level in about three weeks.
Under China's existing rules, only overseas institutions that have been awarded licences and quotas by two different regulatory bodies can invest in A shares. The combined approved quota of about US$86 billion is less than 3 per cent of the US$3.3 trillion market value of locally-listed companies.
It's a "terrible idea because you haven't got the liquidity or the accessibility", Allan Conway, head of emerging-market equities at Schroder, said on April 9 in London. "There's only a certain percentage of those shares that foreigners can buy. There's a quota. You have to buy a quota to even get the exposure to begin with, so you've got very limited accessibility."
Quotas issued under the Qualified Foreign Institutional Investor programme, known as QFII, total about US$54 billion, while 201 billion yuan (S$40.49 billion) of quotas have been doled out under the Renminbi Qualified Foreign Institutional Investor programme, or RQFII, according to the State Administration of Foreign Exchange.
QFII allows dollars to be used for stock and bond investments in the local currency, while RQFII enables offshore yuan to be invested in China.
"If the A-share market does well and foreigners can't take part in this, then it would be unfair," David Poh, the Singapore-based regional head of portfolio-management solutions at the private-banking unit of Societe Generale, which had about US$116 billion under management as at December, said on April 4.
Adding China's domestic shares to MSCI indices would expose investors to a wider range of companies in the world's fifth-biggest equity market. The MSCI China index has 140 stocks, data compiled by Bloomberg show. That compares with about 1,000 in the Shanghai Composite and more than 1,600 in the Shenzhen Composite Index. The move may lure about US$12 billion to the indices, MSCI's Mr Chia said.
"I am in favour of including A shares to the MSCI indices," Robbert Van Batenburg, a director of market strategy at Newedge Group in New York, wrote in response to questions on April 2. "It will however be a very gradual inclusion and presumably contingent upon further liberalisation of the A-shares market."
The number of members in the MSCI China index would increase to 385, with 221 A-share companies being added, according to MSCI's March statement. The weighting of A shares would initially be 2.9 per cent due to the difficulty of investors obtaining quotas, MSCI said. - Bloomberg