MSCI non-committal to Chinese stock inclusion

During the height of volatility in Chinese equities that occurred in September 2015, MSCI CEO Henry Fernandez had stated that Chinese mainland stocks could be included in their portfolio of indices much sooner than many had expected and volatility would not play a role in deciding whether or not the inclusion of these stocks would happen.

But in an about turn stance, the index tracking company has now said that the interference by the State in preventing a financial market crash could hamper the inclusion of Chinese equities into its global indices and stressed to authorities the importance of ensuring that the errors of the past do not happen again thus reinstalling confidence into the financial system.

At the time of Fernandez's comments I said that it was a rather unbalanced opinion given the developments that had unfolded in the preceding weeks which at the time didn't feel stable by any degree. These concerns were confirmed by the summer long support by the Chinese government of equities.

Where to from here?

Well it must be said that the government's decision to remove CSRC Chairman Xiao Gang and replacing him with Liu Shiyu was a step in the right direction following the mishaps of Gang's tenure which included failure to properly implement circuit breakers to create an orderly market that proved to be the last straw for authorities.

Shiyu takes over after having served in a similar roles throughout the Chinese financial system but perhaps the biggest vote of confidence comes from his involvement in developing the bond market in China, the one half that forms part of the capital markets with the other being the equity market. Having participated in one part of the capital market gives Shiyu a sense of the longer term responsibilities that need to implemented in order to attract foreign investment.

It's vitally important that China heeds the call from MSCI if it wants to complete its transformation from an ineffective system that fails to work for its citizens into a fully fledged global financial system that's interconnected to the world's biggest financial markets. The final step in its completion of this goal requires free flowing foreign investment that isn't hindered by meddling from third parties, something that doesn't feel anywhere close to being reached.

MSCI is not quite ready to let China into the fold - yet https://t.co/Sd1ln1SGpA pic.twitter.com/V5uPSS7FIj

— Bloomberg Markets (@markets) March 31, 2016