MSCI May Add China Shares to Emerging Index, SG Fund Says

MSCI Inc. may add China’s domestic shares to its emerging-markets index this year for implementation in 2015, according to Fortune SG Fund Management Co., a Societe Generale Group and Baosteel Group joint venture.

The odds that MSCI’s proposal will go ahead are greater than 50 percent, Alexandre Werno, executive vice general manager of Fortune SG, which has about $11 billion in assets, said in an interview at Bloomberg’s Shanghai office yesterday. The company is preparing for inclusion by developing products for European investors that allow them to access mainland shares, he said.

“It’s our bet that it will be integrated,” said Werno. “There is more than 50 percent possibility.”

MSCI, whose indexes are used to measure performance by money managers with an estimated $8 trillion of assets, has been consulting with overseas investors on the proposal and said it will decide in June. While approval may spur inflows of as much as $125 billion into China’s equities by 2016 according to estimates by Deutsche Bank AG, the proposal is drawing opposition from Templeton Emerging Markets Group and Coutts & Co.

The proposal is a “very bad idea and will make the indices increasingly irrelevant,” Mark Mobius, who oversees about $50 billion as executive chairman of Templeton Emerging Markets, said this month. The shares shouldn’t be included because of limited quotas for overseas investors and an uncertain tax regime, said Kenneth Sue, head of products & services for Asia at Coutts.

Fund Feedback

“We are getting a lot of feedback,” Ted Niggli, a managing director at MSCI, said in a phone interview yesterday. The index provider hasn’t changed its position that a decision will be made by June, he said.

MSCI will include the proposal in its 2014 review of market classifications, the company said in a statement on March 11. It plans to implement the proposal in May 2015, subject to feedback from market participants. MSCI will probably contact between 2,000 and 3,000 global investors before deciding whether to include A shares, Chia Chin-ping, a Hong Kong-based managing director at MSCI, said in an interview last month.

Regulators in China restrict overseas investors to foreign-currency denominated B shares, while institutions approved under the Qualified Foreign Institutional Investors program can invest in yuan-denominated A shares. Approved QFII quotas totaled $53.6 billion by March, according to the State Administration of Foreign Exchange.

— With assistance by Shidong Zhang, Gregory Turk, Allen Wan, and Karen Yeung

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