RPT: Whats Naira's Real Value as MSCI Reviews Emerging Stocks

By Detlef Glow

By Detlef Glow

Inclusion in the index is seen as significant for China's stock markets because many overseas investors measure the performance of their portfolios against MSCI indexes and are obliged to buy shares in them.

The New York-based index giant MSCI said Tuesday that it would add 222 Chinese A shares beginning next year.

China's domestic stocks will be included in the MSCI index from June 2018, according to the financial regulator.

LONDON, June 20 (Reuters) - Emerging market stocks took a breather on Tuesday after their best day in nearly two months, as investors waited to see whether MSCI would add the first batch of mainland China-listed shares to its $1.5 trillion EM index.

By opening up the mainland market through the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect previous year, the central government has gradually eased capital restrictions and investment quotas.

Taiwan's stock market also hit a 17-year high but the main focus of the day was the potential landmark decision by global index provider MSCI on adding 169 mainland-China listed "A-shares" to its widely tracked emerging market benchmark. Switzerland, which has one-tenth the GDP of China, has a 50 percent larger weight in investors' portfolios today, and that makes no sense.

Nevertheless analysts said China's admission to the index would be a good start. The question was clear: have the Chinese authorities made enough progress on making Chinese equities accessible and investable for global investors?

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Although he said MSCI's inclusion had no an immediate impact on his investment strategy, he is planning to add more exposure to A shares due to their "underrepresentation" in the benchmark. MSCI's decision has been closely-watched as a sign of China's growing importance on worldwide financial markets.

"We think Argentina could be initially hit, because the expectation for the inclusion was pretty high", said Lucy Qiu, emerging market analyst at UBS Wealth Management in NY.

The Hang Seng Index fell 0.93 percent, but mainland markets made modest gains.

"Considering the size of global funds that track the MSCI Emerging Markets Index, we see possible outflow of about 600 billion won ($525.92 million) to 4.3 trillion won ($3.77 billion) from our equities", Jeong Eun-bo, vice chairman of the Financial Services Commission said in a policy meeting in Seoul.

All the Chinese stocks set to be included are big-caps and can be easily accessed by foreigners through the "Connect" trading link between mainland and Hong Kong markets.

Reservations remain over pre-approvals and technical issues related to Stock Connect, including the timely execution of trades and settlement, as well as a segregated accounts model that remains out of line with global standards. The company had declined to add the shares for three years leading up to Tuesday's decision.

As far as MSCI is concerned, they have just completed a recent round of global consultations with worldwide investors and will announce the results on 20 June. Restrictions on currency trading in 2015 prompted the review.

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