CSRC meets index providers

Chinese securities authorities have been in meetings concerning the possible addition of yuan-denominated shares to international stock indices, a development which may eventually bring larger inflows of foreign capital into one of the world's largest equity markets, a spokesperson with the China Securities Regulatory Commission (CSRC) announced Friday.

Specifically, the CSRC representative said that the commission had been in discussions with Morgan Stanley Capital International (MSCI), a provider of several prominent stock benchmarks, including its Emerging Markets index.

However, no further details were provided.

If the commission's statements come to fruition, the inclusion of Chinese mainland shares on an index prepared by MSCI or a peer of similar magnitude would give global asset managers and overseas investors more references when it comes to what's happening in the A share market, Qu Wenqian, a cross-border market analyst from Z-Ben Advisors, a Shanghai-based fund investment consultancy, told the Global Times Sunday.

"Right now, MSCI benchmarks only track mainland firms listed in Hong Kong, but these firms represent only a small portion of the equity market on the mainland," Qu said.

Yuan-denominated shares of 2,492 mainland companies are currently traded at bourses in Shanghai and Shenzhen, figures from China's exchange operators show.

Giving A shares a place on a global index will also give foreign investors greater direct exposure to the mainland equity landscape via index-tracking investment options at a time when the CSRC is trying to attract more overseas money, Qu went on to explain.

Figures from the State Administration of Foreign Exchange show that over 221 foreign asset managers and brokerages now hold investment quotas totaling $111.7 billion under China's qualified foreign institutional investor (QFII) program, a scheme which provides overseas institutions a foothold in China's equity picture.

But given the limited number of market barometers and investment vehicles that have historically been available to them in the Chinese mainland, enthusiasm among foreign investors for A shares has long been muted, Qu said.

Meanwhile, Liu Feng, a supervisor at the Financial Planning Standards Board China, argued that Chinese regulators have to address current restrictions on foreign ownership rights and cross-border capital flows before recent steps toward greater access to the equity market will hold any significance for global investors.

"I suggest that the CSRC and other financial authorities should also continue their work to clear up insider trading and accounting fraud, since a more orderly market will boost confidence both at home and abroad," Liu added.