Regulator identifying tools, measures to increase weightage in MSCI index

The China Securities Regulatory Commission is studying new mechanisms and tools to increase the A-share market's inclusion rate in the MSCI Emerging Markets Index from 5 percent to 15 percent, said CSRC Vice-Chairman Fang Xinghai at the 10th Lujiazui Forum in Shanghai on Thursday.

According to Fang, the new mechanisms and tools will include launching the call auction trading system for the A-share market, better regulating the current system that halts and resumes trading, and introducing a mechanism allowing domestic and overseas investors to trade stock index futures.

Global index compiler MSCI included 226 Chinese large-cap A shares on its MSCI Emerging Markets Index on June 1. The stocks have a weighting of 2.5 percent in the index during the first stage. As part of the second step, scheduled to take place in September, the weighting will be raised to 5 percent.

Citibank China Chief Economist Liu Ligang said that as the Chinese financial and capital markets open up further, more overseas institutional investors will become active in the A-share market, which currently mainly comprises individual investors. These institutional investors will increase their investment in the market over time, he said.

Sun Yu, a researcher from securities joint venture HSBC Qianhai, estimated that the two-step inclusion into the MSCI will lead to capital inflows of over $22 billion this year. In the upcoming five to 10 years, the number is likely to exceed $600 billion, he said.

President Xi Jinping said during his speech at the Boao Forum for Asia on April 10 that China will roll out a number of important policies to open up further.

A day later, Yi Gang, governor of China's central bank, announced a total of 12 opening-up policies in the financial sector. They include lifting the limit on foreign ownership in banks and financial asset management companies; gradually eliminating the limit on foreign ownership in securities, futures and life insurance companies; and opening up the business areas foreign insurance agencies can operate in.

According to Fang of the CSRC, the commission is already beginning to implement the policy regarding foreign securities companies. At present, three such overseas companies have submitted their applications to the CSRC. Of those, two will set up their regional headquarters in Shanghai. Many more overseas institutions have also shown their interest and sent enquiries, he said.

Fang said in this sense there is an apparent trend that international investors are now more inclined toward renminbi assets.

"Therefore, Shanghai should speed up building itself into an international financial center. It is prime time for Shanghai to attract the world's leading institutions to settle down here," Fang said.

"From the perspective of global competition, China needs an international financial center that has its say worldwide. Unilateral trade and trade protectionism will not last long since the multipolarization of the world economy is now irreversible," he added.