News Analysis: Delayed MSCI inclusion a catalyst for further market reform

The decision by global stock index compiler MSCI to delay the inclusion of Chinese mainland-listed A-shares in its global benchmarks will have no substantial impact on the market and could be a catalyst for further reform.

International institutional investors "would like to see further improvements in the accessibility of the China A-shares market before its inclusion," MSCI announced Tuesday in New York.

MSCI acknowledged the significant improvements achieved by China in widening accessibility to the A-shares market, adding that the inclusion will still be discussed in its 2017 review and it was not ruling out a potential off-cycle announcement, should further positive developments occur ahead of June 2017.

Analysts said the cost of the decision would be more symbolic than substantial.

"For China's economy [...] a longer wait should not hurt much, especially if it pushes the government to accelerate market reforms," Bloomberg economist Tom Orlik said.

Minsheng Securities analyst Guan Qingyou said it was only a matter of time before A-shares were included in the MSCI index and the delay should be used to further reform and improve the market.

It was the third year in a row that MSCI kept China's A-shares out of its emerging markets index, which covers 23 countries and regions, representing 10 percent of the world's market capitalization.

In its last rejection in June last year, MSCI cited investor concerns including the lack of transparency in the investment quota allocation system, restrictions on capital mobility and a lack of clarity over beneficial ownership.

Since then, China has made policy changes to address these issues. Financial authorities have reduced investment barriers by relaxing quotas on foreign investment in domestic stocks, allowed for more flexible remittance of funds and revised existing rules to better regulate suspensions and limit trading halts.

"There have been significant steps toward the eventual inclusion of China A-shares in the MSCI emerging markets index," said Remy Briand, MSCI managing director and global head of research. "We look forward to the continuation of policy [to address] the remaining accessibility issues."

Responding to the MSCI decision, Deng Ge, spokesperson for the securities supervisor, China Securities Regulatory Commission, said this will not affect the opening-up or reform of China's capital market, as "building a long-term stable and healthy capital market is our own need."

A-shares are becoming more influential and any international stock index without A-shares is incomplete, Deng said.

The A-shares market was unfazed by the decision. The benchmark Shanghai Composite Index opened one percent lower Wednesday, but pared losses to rise 1.6 percent by close. The Shenzhen Component Index gained 2.8 percent. Endi