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The annual “Tianguan Day†has come again. This year is the fourth time for the A-shares to prepare for the MSCI (Alum) Emerging Markets Index.
According to the latest news received by the First Financial Reporter, MSCI will announce the results of the annual market classification review on June 21, Beijing time. The results will be uploaded to the MSCI website at 4:30 on the same day of Beijing time, and at 7:00 and 15 respectively. Two media teleconferences will be held, which will be hosted by Sebastian Lieblich, head of the MSCI Global Index Research Department.
At the beginning of this year, MSCI proposed a new plan for A-shares to be included in MSCI based on Shanghai-Shenzhen-Hong Kong Stock Connect, which eliminated the concerns of foreign-funded institutions on the redemption restrictions of A-shares. Tianfeng Securities expects that if the new plan is adopted, it will be estimated that the initial amount of approximately RMB 65.71 billion will flow into the A-share market.
On March 25 this year, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said during the 2017 Boao Forum that he was cautiously optimistic about A shares entering MSCI. Industry analysts believe that the reason for optimism is that this year's A-share redemption restrictions are alleviated; the precaution is that the core issues of external investors' concerns have not yet been fully resolved, such as the pre-approval system for financial products and suspension of trading.
The first financial reporter recently interviewed a number of foreign funds and found that many funds for the A-shares are expected to be significantly higher than last year, and some even believe that the success rate is "extremely high."
The three major problems are gradually being solved
June 21 is the voting day for A-shares to be included in the MSCI Emerging Markets Index. Once formally added, this will change the market's expectations for the future liquidity of A-shares.
Robeco China Chief Investment Officer and China Equity Fund Manager Zhai Zimei told the First Financial Reporter: "The possibility of MSCI's inclusion of A shares this year is extremely high, much higher than in the past few years. The inclusion of A shares will strengthen the integrity of MSCI. Sex. A shares are already the second largest stock market in the world, and its market capitalization of about $7 trillion has accounted for about 10% of the total market value of global stocks."
In June last year, MSCI announced that it would not include A shares in the MSCI Emerging Markets Index, and raised three issues that should be resolved and widely concerned by international investors.
First, improve the QFII (Qualified Foreign Investor) policy, cancel the 20% monthly redemption limit; secondly, improve the stop-and-go system (the number of stocks suspended during the stock market is too high, the liquidity is poor); Finally, improve the A-shares Pre-approval restrictions on related financial products. In general, international investors are concerned with the freedom of funds to go and the freedom to use tools.
This issue has been in the process of being repaired this year.
In 2016, Shenzhen-Hong Kong Stock Connect opened. Under the new interconnection and interoperability scheme, international investors can directly trade 1480 Shenzhen or Shanghai stocks without the need to apply for permits and quotas, as well as restrictions on capital flows. Although Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have daily investment quota restrictions, there is no limit on the total amount. The daily investment quota can basically meet the free entry and exit of foreign capital.
Secondly, after experiencing the suspension of the 1,000 shares in 2015, the system of suspension and resumption is constantly improving. Tianfeng Securities said that although the number of suspensions has not changed significantly after the suspension of the new regulations in May 2016, it can be seen that the proportion of suspended shares in the number of A-share listed companies has dropped significantly.
At the same time, MSCI is in the process of negotiating with the domestic exchanges to resolve the pre-approval requirements for A-share stocks and incremental financial products.
New plan to increase success rate
In addition to the fact that the concerns of international investors are gradually being resolved, another reason for the significant increase in the possibility of A-shares this time is the new proposal proposed by MSCI.
The new scheme proposes to include only large-cap stocks that can be traded through Shanghai Stock Connect and Shenzhen Stock Connect, excluding the A-shares of the joint listed companies in the two places that are already constituents of the MSCI China Index, and the stocks that have been suspended for more than 50 days. The new program will reduce the number of A-shares that may be included in the index to 169.
According to MSCI estimates, if A shares are successfully included, their weights in the MSCI China Index and the MSCI Emerging Markets Index will be 1.7% and 0.5%, respectively, which were originally 3.7% and 1%.
Currently, QFII's monthly capital redemption limit cannot exceed 20% of its previous year's net asset value. This restriction creates potential liquidity barriers for investors when redeeming their clients' funds. Last year, MSCI related people also said in an interview with the First Financial News that the redemption restrictions and the previous large-scale suspension were the main reasons hindering the inclusion of A-shares in MSCI. Under the new arrangement of MSCI, foreign institutions do not need to use the QFII quota, and there is no redemption obstacle.
Zhang Yu, head of the overseas research department of Minsheng Securities, told the First Financial Reporter that compared with the QFII/RQFII system, the disadvantage of the new scheme is that the stocks it can obtain are limited, not all A shares.
However, she also said that considering the initial inclusion of A-shares, mainly blue-chip stocks, the real impact of this disadvantage is limited. Another concern is that “the new scheme uses offshore renminbi as the index-denominated currency, and QFII uses the onshore exchange rate. Considering that the offshore pool is small and the exchange rate volatility is greater than the onshore status, the exchange rate risk will expand.â€
A-share internationalization will not go backwards
Under the new plan, although the amount of funds flowing into A shares after Shaoguan's success will be smaller than the old one, all circles agree that this will be an important step for A-shares to keep in line with international markets and international order.
"China will face an increasingly open market in the future. MSCI is only a head. Whether it is not included, China's reform and opening up will not stop." Deputy General Manager of China Investment Corporation, China Securities Regulatory Commission, Innovation Business Supervision Min Yuan, former director of the Ministry of Foreign Affairs, said that the Chinese market can learn from foreign countries in many aspects. For example, the cooperation between various markets in London and England is very good, and can learn from the experience of inter-agency cooperation and international peer cooperation.
For MSCI, the inclusion of A shares is also an important step in ensuring the integrity and representation of the index. "MSCI will definitely include A shares in the long run, and it also shoulders this responsibility." Mayor Global Asset Management Investment Director Dayar told the First Financial Reporter, "In May 2015, the FTSE FTSE Index Company has Launched a plan to include A-shares in its global transition index and launch two emerging market transition indices including A-shares. However, inclusion or not is not the focus, but more importantly, the entire internationalization process of A-shares in the future."
Tianfeng Securities said that under the new plan, the officially announced MSCI index is expected to be included in the A-share constituents. First, the scope of the target is narrowed, with large-cap blue-chip stocks and white-horse stocks as the mainstay; second, the industry configuration is still biased. In terms of finance, industry and optional consumption, the proportion of consumption increased significantly. The financial ratio decreased from 27.5% to 22.5%, and the proportion of optional consumption rose from 11.3% to 15.5%. In addition, the proportion of required consumption rose from 6.4% to 9.8%, the total consumption segment accounted for 25.3%; the proportion of real estate rose from 5.8% to 7.9%, and the proportion of telecommunications services rose from 0.9% to 1.9%; The ratio fell from 6.5% to 3.8%.
With reference to international precedents, the initial inclusion ratios of South Korea and Taiwan in 1996 were 20% and 50% respectively, and then gradually increased to 100%. Therefore, the “gradual†full inclusion of A shares in MSCI is also foreseeable. After being included in the MSCI Emerging Index, there will be international capital inflows in the short term.
The mainstream view is that the incremental funds brought to the A-share market after integration are not the key to the problem. The real significance is that it has taken an important step in the integration of the domestic capital market and the global financial market, an open, market-oriented, standardized, Non-speculative stock markets can provide stronger support for the transformation and development of the real economy.
Editor in charge: Zhang Yujie SF107
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