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Goldman Sees Coin-Toss Odds of China Stocks Joining MSCI in June

  • Citigroup also on the fence, seeing 51 percent chance
  • MSCI consulting investors after deferring inclusion in 2015

Goldman Sachs Group Inc. has done the math: there’s a 50-50 chance that MSCI Inc. will add mainland Chinese stocks to benchmark indexes in an upcoming review.

China’s equity-market size and efforts to improve access for foreigners support inclusion, while a lack of clarity around share suspensions and repatriation limits on an inbound investment system will count against it, Goldman analysts led by Kinger Lau wrote in a report dated Monday. MSCI is seeking feedback from investors again before a June decision, after last year delaying putting the securities in its gauges.

With an estimated $16 billion of investment flows at stake, Goldman isn’t alone in finding MSCI’s decision difficult to call. Citigroup Inc. said this month that there’s a 51 percent chance that Shanghai and Shenzhen-listed stocks, known as A shares, will be included this June. Citigroup is more definitive over a longer term, seeing a 99 percent likelihood of MSCI announcing the stocks’ addition to global gauges by the end of 2017.

“The probability for the MSCI to include A shares this June is very evenly-distributed," the Goldman analysts wrote. “The major pushbacks continue to revolve around the market microstructure aspects of A shares."

The likelihood of inclusion by MSCI would be substantially raised if some of investors’ key concerns are addressed before June, and it’s possible that the index compiler could make a decision outside of its regular annual review process, they wrote. If mainland shares win approval in June, the implementation would probably happen in mid-2017, according to Goldman.

Last Year

MSCI, whose main indexes were the benchmarks last year for more than $9.5 trillion of assets, said in June that it would work with China’s securities regulator to overcome remaining obstacles such as investor quotas and ease of access. The decision came just before a rout in mainland shares that erased more than $5 trillion, with exchanges allowing trading halts that shut down half the market.

There would be $16 billion net buying of A shares if they were included in MSCI’s gauges at a 5 percent inclusion factor, Goldman estimated. Kweichow Moutai Co. and Wuliangye Yibin Co. will benefit, while Shenzhen-listed shares are expected to deliver higher earnings growth, according to the report.

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