MSCI Completes the Successful Implementation of Final Phase of the 20% Partial Inclusion of China A Shares in MSCI Indexes
As of the close of markets on
As previously stated, any further inclusion of China A shares in the MSCI Indexes would follow a public consultation and be reviewed against the progress made towards addressing the remaining market reforms highlighted by international institutional investors. During MSCI’s most recent public consultation on China A inclusion1 investors stressed the need to resolve the following concerns ahead of consideration of further inclusion:
- Access to hedging and derivatives instruments: International institutional investors require liquid on and offshore index futures and options contracts in order to expand their allocation to
Chinaand manage their increased exposure. Index futures and options contracts are critical risk management tools for global investors, particularly for complex, deep and varied equity markets such as in China.
- Short settlement cycle for China A shares: International institutional investors have highlighted that they continue to face significant operational challenges and risks in dealing with the short settlement cycle of China A shares.
Chinacurrently operates on a T+0/T+1 non-Delivery versus Payment (non-DVP) settlement cycle. Most markets in the MSCI ACWI operate currently on a T+2/T+3 DVP settlement cycle.
- Trading holidays of Stock Connect: International institutional investors are concerned with the misalignment between onshore
Chinaand Stock Connect holidays. Given that most global institutional investors currently rely on Stock Connect as the primary access channel for China A shares, it is important that the current trading holiday arrangement be reviewed to minimize unnecessary investment frictions.
- Availability of Omnibus trading mechanism in Stock Connect: Many large fund managers and broker dealers have highlighted the pressing need for a well- functioning omnibus mechanism. The ability to place a single order on behalf of multiple client accounts is critical to facilitate best execution and lower operational risk to international institutional investors.
1 MSCI conducted a public consultation on the increased weighting of China A Shares in MSCI Indexes from September 2018 – February 2019.
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