Business News

CCTV Script 20/06/17


This is the script of CNBC's news report for China's CCTV on June 20, Tuesday.

Tomorrow morning at 4:30am here in Singapore and Beijing time, MSCI, which is one of the world's largest index providers, will decide whether to include a selection of China's mainland stock market into its MSCI Indexes.

To include, or not include, that's the question for now. But if the answer if yes, emerging Market passive managers have no choice but to buy the stocks once added to the index while active-managers generally must at least consider the stocks for purchase. Therefore, the inclusion is very likely to bolster the local bourses in the short-term.

For example, in May 2013, MSCI announced the United Arab Emirates and Qatar would be upgraded to Emerging Markets in May 2014. During this time period, the MSCI UAE and Qatar indexes rose 85.6% and 49.1% respectively.

Pakistan, which was announced to be included on June 1 this year, is no exception.

Pakistani equities has been very popular with overseas funds for the past year, with a yearly return of more than 20%, as of the market close on Monday, althouth we did see some correction after stepping into the month of June.

So now, the focus is on the China A Share's inclusion.

Hong Kong stocks are already included, but including mainland China would increase the weighting of China stocks in the Emerging Market index from roughly 26 percent to over 40 percent with full inclusion. Acceptance of mainland China would mark a major move forward for China's domestic markets and oblige funds all over the world to invest billions in mainland China.

[ADRIAN ZUERCHER, UBS Managing Director, Head Asset Allocation Asia] "If would be an additional boost for the Chinese equity market. But the number is pretty small - half percent in the emerging market index is a quite small number. Eventually will be about 17%, and I think that will make a big difference."

ETF investors have already been betting on an answer of yes to the China inclusion, as they seek entry into MSCI's benchmark indexes.

The KraneShares Bosera MSCI China A ETF, ticker KBA, saw $49.5 million of inflows in May, its best month ever. So far in June, $67.5 million has poured into China equity funds listed in the U.S., compared with $100 million of outflows during the first five months of the year, the data show.

Meanwhile, according to Goldman sachs, the odds are 60 percent in favor of A shares being included at MSCI's annual review this year. Other institutions, including Morgan Stanley, are predicting a probability of more than 50%. Therefore, it's still a close call, to many analysts.

[ADRIAN ZUERCHER, UBS Managing Director, Head Asset Allocation Asia] "Two concerns have been addressed, in terms of capital mobility and and also the suspension rules. But there's still lingering issues of having offshore financial products leaning to A share equities which hasnt been addressed. So it will be a bit tough call, close call, but the chances are definitely here."

Last year, MSCI listed three main reasons why they would like to delay the A shares inclusion and would like to wait and see more progress on the Chinese stock market reforms. One reason is the country's Qualified Foreign Institutional Investor program, which carries a 20 percent monthly capital repatriation maximum. The program effectively limits the size and timeliness of portfolio flows.

Another barrier is a pre-approval requirement for investment products that use A shares as an underlying.

And lastly, concerns over the suspension rules.

During the past year, Chinese policy markers have been targeting these three areas to meet the requirements of MSCI.

And if included, analysts estimate that it may trigger $12 billion of net inflows into China A shares, which is a drop in the sea for a market of that size, but the symbolic value is enormous.

CNBC's Qian Chen, reporting from Singapore.