Chinese capital market reform unfazed by pending MSCI inclusion

Xinhua | Updated: 2017-06-16 16:46
BEIJING - Chinese A-shares market is center of a renewed round of global interest, pending its entry into an international benchmark index.

After delaying for three years, global equity index provider MSCI will decide next week whether to include a number of Shanghai-and-Shenzhen-listed stocks in one of its most traded indexes.

There has been less talk about the decision this year compared to the past three years, and perhaps it is time to forget about the odds of China's A-shares being placed in the MSCI Emerging Markets Index. China's stock market has and will keep on opening up, regardless of the outcome -- a nod from the MSCI is surely just a matter of time.

The previous rejections by the MSCI were not setbacks for China's A-shares, but an encouragement to push the country towards a more market-oriented, law-based and open market.

Shortly after the MSCI started review work for China A-shares, China announced its pioneering Shanghai-Hong Kong Stock Connect program, enabling foreign investors to buy A-shares with fewer restrictions than under previous schemes.
A bond market connection between Hong Kong and the mainland is also expected soon. Although not relevant to the MSCI decision, it showcases the direction in which China's securities market is heading.

Though there are undoubtedly still lingering concerns, too much hesitation now could be seen as a mistake in the future.
A global stock index without China A-shares is incomplete and cannot fully represent the potential market value of emerging economies. It is better to reap the gains from wider connectivity, sooner rather than later.

International investors should not wait for the perfect scenario, but look beyond the Chinese stock market's current development and prepare for its continuous opening up and potentially greater prominence in world markets.

It is welcome that the MSCI takes a proactive stance. It has proposed initially including only A-shares sourced under the stock connect, which are not subject to the same restrictions governing ordinary channels. The proposal, many analysts say, is a win-win step for all and has a real chance of being accepted.

For now, we should take a wait-and-see approach to the MSCI decision while resting assured that China's capital markets are steadily progressing.
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