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MSCI says will not add China A shares to emerging index

Equity index provider MSCI on Tuesday said it will not add China's mainland-based A shares to its benchmark emerging markets index but that the shares will remain on review for a possible move in 2015.

China, the world's largest emerging market, is already the biggest component of the MSCI emerging market index, which is benchmarked by more than $1.3 trillion global assets under management.

China's current share of the index, however, is composed of shares listed in Hong Kong, or listed in China but denominated in U.S. or Hong Kong dollars.

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MSCI said in March that it planned to include China A-shares in its benchmark emerging markets index as early as next May. The move was expected to help the index better reflect China's equities markets.

China's so-called A-shares are the renminbi-denominated shares of companies incorporated in mainland China and traded on the Shanghai and Shenzhen exchanges. For foreign investors to gain access to the A-shares market, they must do so through a quota system known as the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme.

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Recent expansion of the quota system, allowing for greater foreign investment in the A-shares market, had prompted major index providers like FTSE and MSCI to begin eyeing the inclusion of A-shares in their benchmark indexes.

Chia Chin Ping, managing director at MSCI, had estimated that the inclusion of mainland listed A-shares in the index could move as much as $12 billion into China's struggling stock markets as mutual funds and pension funds reallocated their portfolios. But he told Reuters that no decision had been made, due to resistance by some funds.

While that resistance stems from the difficulties in accessing the onshore capital markets, Chinese authorities have taken steps in recent weeks to open more channels to market access, including announcing the launch of a landmark Hong Kong Shanghai stock connect scheme.

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MSCI also said South Korea and Taiwan indexes will be removed from its review list for reclassification to developed markets. Each will remain in the emerging markets classification.

The index provider said it is no longer considering a public consultation on the potential exclusion of the MSCI Egypt index from its emerging markets index. It said the decision follows a substantial increase in the country's foreign currency reserves.

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