Chinese markets led gains in a mixed session for major Asian bourses on Wednesday, shrugging off a decision by stock index provider MSCI on Tuesday to delay inclusion of mainland-traded Chinese A shares in its key emerging market index.
Most other Asian markets also reversed morning losses, despite continued jitters over the possibility the U.K. may opt to exit the European Union as well as concerns over the outcome of the Fed meeting, due later, and the Bank of Japan's meeting ending Thursday.
The Shanghai composite and the Shenzhen composite each erased opening losses of more than 1 percent to close up; the Shanghai benchmark index added 44.73 points, or 1.57 percent, to 2,886.92, while the Shenzhen composite gained 57.24 points, or 3.12 percent, to 1,889.86.
That contrasted with a stronger reaction in U.S. markets on Tuesday, where the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) fell more than 2 percent in after-hours trade.
The MSCI's decision on A-shares came after international institutional investors clearly indicated that they would like to see further improvements in accessibility to China's market. MSCI said that it would monitor the implementation of the recently announced policy changes and will seek feedback from market participants. The Chinese stocks currently listed in MSCI's emerging market index are traded in either Hong Kong or the U.S.
David Qu and Raymond Yeung from ANZ said the MSCI decision should have no direct influence on onshore equity markets. "China's equity market is very domestic," they said in a note on Wednesday.
"Even if the A-shares were partially (5 percent) included, the direct influence to onshore equity markets would be marginal in the near term, as it would trigger a total inflow of only $22 billion into China's equity market over the course of one year," Qu and Yeung said, adding the decision will likely have minimal impact on the yuan exchange rate and the Chinese bond market.
Some analysts expect the MSCI decision will impact the Chinese currency.
"Since the expectation of capital inflow due to the inclusion of A-shares into MSCI has gone, the expected capital inflow dissipates, the yuan (both onshore and offshore yuan) is set to depreciate beyond 6.6 today," said Iris Pang, Natixis' senior economist for Greater China. She added the uncertainty on Brexit makes "a double whammy on the currency."
Before market open, the People's Bank of China guided the yuan's mid-point fix to 6.6001 against the dollar, its lowest levels since early 2011.
The on-shore dollar/yuan pair traded at 6.5925 as of 2:58 p.m. HK/SIN, compared with an intra-day high of 6.6043, while offshore yuan traded at 6.6058 to the dollar. China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.
While the yuan is primarily traded on the mainland and subject to strict central bank supervision, its offshore counterpart is accessible to everyone.