Inside Financial Markets

Results of MSCI 2015 Market Classification Review

msciResults of MSCI 2015 Market Classification Review

Geneva – June 9, 2015 – MSCI Inc. (NYSE: MSCI), the premier provider of global equity indexes, announced today that it
expects to include China A‐shares in its global benchmarks after a few important remaining issues related to market
accessibility have been resolved. MSCI and the China Securities Regulatory Commission (CSRC) will form a working
group to contribute to the successful resolution of these issues.
“Substantial progress has been made toward the opening of the Chinese equity market to institutional investors,” said
Remy Briand, MSCI Managing Director and Global Head of Research. “In our 2015 consultation, we learned that major
investors around the world are eager for further liberalization of the China A‐shares market, especially with regard to
the quota allocation process, capital mobility restrictions and beneficial ownership of investments.”
Briand continued, “Because MSCI’s client base is so large and diverse, we have a strong interest in ensuring that
remaining issues are addressed in an orderly and transparent way. We are honored that the CSRC has recognized
MSCI’s expertise regarding the requirements of international institutional investors. We look forward to a fruitful
collaboration that will contribute to the further opening of the China A‐shares markets to international investors and
the inclusion in the MSCI Emerging Markets Index.”
MSCI stated that it may announce the decision to include China A‐shares in the MSCI Emerging Markets Index as soon
as the issues it has outlined are resolved. This may happen outside the regular schedule of its annual Market
Classification Review.
In today’s announcement, MSCI also said that it will include the MSCI Pakistan Index in its 2016 Annual Market
Classification Review for a potential reclassification to emerging markets.
In addition, MSCI said that it will seek feedback from international institutional investors on the accessibility of the
Saudi Arabia equity market following its opening on June 1, 2015 before considering adding the MSCI Saudi Arabia
Index to the review list for a potential inclusion in the MSCI Emerging Markets Index. MSCI always requires a period of
monitoring in order to assess whether a policy change is effectively operating as intended.
Finally, MSCI released the 2015 Global Market Accessibility Review for the 82 markets under its coverage.
Each June, MSCI communicates its conclusions, based on discussions with the international investment community,
about a list of countries under review. At that time, it also announces the identities of any new countries under review
for potential market reclassification in the upcoming cycle.
China A‐shares
MSCI will collaborate with the CSRC over coming months to facilitate discussions designed to lead to the
implementation of policies that effectively resolve the remaining accessibility issues in the China A‐shares market.
Since its 2014 Annual Market Classification Review, MSCI has continued to observe significant positive market‐opening
developments in the Chinese capital market. These developments include the successful launch of the Shanghai‐Hong
Kong Stock Connect program (“Stock Connect”), the expansion of RQFII program from four cities to 12 cities and the
clarification of the capital gains tax. In addition, the imminent launch of the Shenzhen‐Hong Kong Stock Connect
program and potential further liberalization of the QFII program should further improve the accessibility of the China Ashares
The working group aims to facilitate discussion and understanding of accessibility concerns and potential solutions that
were highlighted by international institutional investors in MSCI’s 2015 consultation. The concerns include, but are not
limited to, the quota allocation process, capital mobility restrictions and beneficial ownership of investments.
1. Quota allocation process. Global investors told MSCI that having reliable access to quota is a critical requirement.
They believe that large investors should be given access to quota commensurate with the size of their assets under
management. This is especially important for passive investors, whose investment processes replicate benchmarks.
In addition, all investors said that they need sufficient flexibility and assurance to secure additional quota should
the need arise. Most international investors have indicated a preference for a more streamlined, transparent and
predictable quota allocation process.
2. Capital mobility restrictions. Liquidity is a critical component of the investment process. Regardless of the channel
they use, investors say that they need access to daily liquidity. They believe that this access should apply to all
investment vehicles, including open‐ended funds, ETFs and separate accounts. Some investors have continued to
express concerns about restrictions on capital lock‐up and the limit on the amount of repatriation. Finally, in the
context of Stock Connect, investors feel that the daily limit imposed on the “northbound access” (access to
Shanghai‐listed A‐shares through the Hong Kong Stock Exchange) should be lifted because it is a great source of
trading uncertainty for passive investors, who typically trade on market close.
3. Beneficial ownership. MSCI applauds CSRC’s recent clarification on the Stock Connect beneficial ownership issue.
MSCI expects this clarification to make international investors more confident in using the Stock Connect scheme.
Time and actual experience, however, are needed for investors to provide their final assessments. A large number
of asset owners invest through separate accounts. Because they typically delegate investment and operational
decisions to their fund managers, recognizing clear title to ownership for the ultimate beneficial owners is a crucial
Recognizing the significant progress to date and ongoing reform efforts, China A‐shares will remain on the 2016 review
list for potential inclusion into Emerging Markets.
MSCI has updated the consultation document that describes the proposed index inclusion roadmap for China A‐shares
in the MSCI Emerging Markets Index. This roadmap, which was introduced in March 2014, proposes to partially include
China A‐shares in the pro forma MSCI China Index and its corresponding composite indexes, including the MSCI
Emerging Markets Index, at 5% of its FIF‐adjusted market capitalization. The updated consultation document
incorporates a revised implementation timeline and can be found on MSCI’s web site at

Ahsan Baig

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