One step forward for A-share inclusion

Added 9th May 2016

The China Securities Regulatory Commission has cleared doubts about the beneficial ownership of QFII and RQFII schemes, ahead of the June decision to include A-shares in key MSCI indices.

One step forward for A-share inclusion

MSCI said in April that the QFII and RQFII framework does not provide a clear recognition on the ultimate beneficial ownership of assets under separate accounts. In order for A-shares to be included in the MSCI Emerging Markets index, beneficial ownership issues need to be resolved, the index provider has said.

The CSRC stated in an FAQs last Friday that its system can “support the recognition of rights and interests of beneficial owners of securities as held under QFII/RQFII’s separate account scheme”.

The institutions can choose to open accounts to specify their name, “to further demonstrate those assets in the above-mentioned accounts belong to relevant beneficial owner of securities, and are separate from and independent of those of the asset manager."

Roughly 23% of QFII accounts and 20% of RQFII accounts were opened in this way at the end of 2015, the CSRC added.

Goldman Sachs and BNP Paribas have estimated a 50% chance that A-shares will be included in the indices, while Citibank said the probability is 51%.

BNP forecast about $1.36bn of passive buying and $9.9bn active buying of A-shares in May 2017, if they represent 4.2% to MSCI China index and 1.1% in MSCI EM index.

An MSCI official was not available for comment.

The index provider earlier listed four criteria to consider including A-shares in its indices:

Positive feedback from international institutional investors on the effectiveness of the QFII policy changes; Resolution of the beneficial ownership issues; Successful implementation of measures preventing wide spread voluntary suspensions and full removal of the anticompetitive measures imposed by the local Chinese stock exchanges which limit the fund vehicles available to international investors.

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