China Musings: Index (inclusion) strategy: Raising our probability for A-share inclusion, and still liking ADRs post their 2nd tranche inclusion
Two important index (MSCI) events will take place in the next 2 weeks – first, the 2nd tranche of ADR inclusion is scheduled to be implemented on May 31, and on June 15 (HKT), the MSCI will announce the results of its Annual Market Classification Review, with the A-share market being one of the candidates for index inclusion. In this China Musings, we refresh our expectations and strategies for these 2 index inclusion events.
Raising our probability for A-share inclusion from 50% to 70%; but roadmap is still more important than timing
As detailed in our recent report: The great China debate (II): China A inclusion to MSCI – should, will, when?, Apr 25, we assigned a 50% probability to a Yes decision by the MSCI to add A-shares to its benchmark as we thought the arguments on both sides were largely balanced. One month has gone by, and two recent developments have prompted us to raise our Yes probability. They include:
* On May 6, the CSRC clarified its stance on beneficial ownership of securities through nominee holder, officially recognizing that "A QFII may apply to the securities registration and settlement institution for opening a securities
account, in the name of actual holders or nominee holder.”
* On May 27, the CSRC, together with the Shanghai and Shenzhen Stock Exchanges published detailed guidelines to regulate and curb voluntary stock suspension in the A-share market.