Western asset managers can breathe a sigh of relief: they don’t have to start chasing inflated Chinese stocks just yet. Index compiler MSCI has decided the pumped-up $10 trillion equity market is not quite ready for inclusion in its global benchmarks. Even so, fund managers can’t ignore China for much longer.
At times, the debate about including China in global indexes verges on the surreal. How can investors disregard the world’s second-largest stock market by capitalisation? Yet MSCI and stewards of the estimated $9.5 trillion in assets measured against its yardsticks have good reasons to be cautious.
Buying shares in China is still complicated. Though investors in Hong Kong can now trade Shanghai stocks, a planned link with Shenzhen has not yet gone live. A cap on transactions could prevent investors buying when they wish. Big fund managers can apply for quotas to invest directly, but allocations are far from transparent. Investors also still worry about whether they have an enforceable legal claim on Chinese shares held through third parties.
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