MSCI Tells China to Fix Issues Before It Even Considers Adding Shares

(Bloomberg) -- MSCI Inc. said it will only consider adding more yuan-denominated shares to its indexes after China addresses concerns over market accessibility.

The index compiler outlined four main outstanding issues in a Tuesday statement. They include a dearth of hedging tools and derivatives, China’s short settlement cycle, the onshore market’s holiday misalignment with Hong Kong and a lack of mechanisms allowing brokers to place a single order on behalf of multiple clients.

While the concerns aren’t new -- and have been flagged by investors for years -- the statement marks a hardening in tone for MSCI. The company is now saying it won’t even consult on greater A-share inclusion until all of the issues are fixed, putting the onus on China. In February, it said further inclusion “would require” authorities to improve market accessibility.

MSCI just completed its latest round of inclusion in a three-phase plan that started in May. Its benchmarks now include 472 A shares, made up of 244 large cap and 228 mid-cap stocks, it said in the statement. The changes were effective as of Tuesday’s close.

Foreigners’ China Stock Buying Surges Ahead of MSCI Move: Chart

Ahead of the index rebalance on Tuesday, overseas investors bought the most mainland Chinese equities in at least three years, purchasing a net 21.4 billion yuan ($3.1 billion).

To contact the reporters on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net;Amy Li in Shanghai at yli677@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury

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