In our article, No Big Bang: MSCI Slashes Its Proposal for China A-Shares, we cited the three main obstacles that held back the inclusion of China A-shares into the MSCI’s Emerging Market Index (EEM) (VWO) in June 2016.
- Effective implementation of the QFII policy changes and removal of the 20% monthly repatriation limit
- Effective implementation of new trading suspension treatment
- Resolution of pre-approval requirements by the local exchanges on launching financial products
What is done?
- The launch of the Shenzhen-Hong Kong Stock Connect Scheme in December 2016 intends to provide access to the approximately 1,480 Shanghai and Shenzhen stocks, which previously remained out of investor reach.
- In February 2017, authorities in China removed the quota restrictions on fund managers under its Qualified Foreign Institutional Investor program. Accordingly, all QFIIs will be allowed to invest roughly 20% of assets under management into China without special permission.
What remains undone?
However, here’s what remains undone for China A-shares inclusion into the MSCI’s EM index (as cited in their presentation):
- The 20% QFII repatriation restriction remains unchanged
- The number of voluntary trading suspensions in the country is now down to their pre-crises level (chart above). However, it continues to remain the highest in the world (see chart above)
- Discussions are still on with China exchanges to reach a resolution on the removal of pre-approval requirements on new and pre-existing financial products linked to China A shares
- Unique investing challenges linked to the daily limit and additional market holidays still exist