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China's A Shares Don't Make MSCI's Cut, But Future Looks Bright

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China's A Shares Don't Make MSCI's Cut, But Future Looks Bright

Despite China's efforts to make its markets more accessible to foreign investors, index provider Msci Inc (NYSE: MSCI) said this week it would hold off on including the nation's "A" shares in its Emerging Markets Index (iShares MSCI Emerging Markets Indx (ETF) (NYSE: EEM)).

Beijing recently removed some of the limitations keeping investors from participating in the Shanghai and Shenzhen markets, but concerns remain regarding an investment quota system that has deterred many fund managers from entering the market.

A Murky System

China's markets have made significant improvements over the past few years in order to attract Western investors.

However, many traders say the nation still has a ways to go before the market is transparent enough to be considered a reliable investment. At the heart of those concerns is a quota system used by Beijing in order to control how much money enters the market.

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Fund managers worry that the system, which is not completely transparent and doesn't give the same treatment to all money managers, would prevent investors from sending money in and out of China on a day-to-day basis.

MSCI Looks To China In The Future

Although MSCI has postponed its decision to add Chinese shares to its index, most believe the question is "when?" rather than "if" the shares will be added in the future.

Other major indices have already voiced their interest in including Chinese A shares in their portfolio as Beijing continues reforming its market. The S&P Dow Jones is expected to decide in September whether or not it will include A shares in its indices.

Image Credit: Public Domain

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