MSCI Postpones China Index Transition for Nearly Six Months

Global index giant MSCI Inc. will delay the transition of the MSCI All China Indexes to the MSCI China All Shares Indexes for almost six months, in order to offer market participants more time to prepare for the transition.

MSCI will delay the transition date from June 1 to Nov. 26, in order to “provide additional time for implementation,” it said in an announcement on Friday. As part of the transition, the MSCI All China Indexes will be discontinued on Nov. 27.

The transition aims to align two index methodologies with similar objectives that cover China-related shares and discontinue MSCI All China Indexes that are based on multiple methodologies, MSCI said in a proposal released in January 2018.

Both the MSCI All China Indexes and the MSCI China All Shares Indexes are built with different percentages and weights of constituents covering A-shares, B-shares, H-shares, Red chips, P-chips and shares of other foreign listed Chinese companies, according to the proposal. Also, the MSCI All China Indexes are composite indexes that combine several methodologies, while the MSCI China All Shares Indexes are constructed based on one integrated universe, the proposal said.

In China, stocks can be classified in a number of ways. A-shares are yuan-denominated stocks traded in the Shanghai and Shenzhen stock exchanges. B-shares are those shares listed in Shanghai and Shenzhen with face values in yuan but are traded in foreign currencies, while H-shares are denominated in Hong Kong dollars and are traded in Hong Kong.

Red chips are the stocks of Chinese companies — directly or indirectly controlled by Chinese governments — incorporated outside the mainland and listed in Hong Kong.

P-chips refer to the stocks of private Chinese companies listed in Hong Kong that are incorporated in places outside the Chinese mainland, such as the Cayman Islands, Bermuda and the British Virgin Islands. In addition, the transition can also benefit the MSCI’s A-shares inclusion move that aims to increase the weighting of A-shares in its indexes from 5% to 20% this year, as the transition can offer a more consistent methodology. The delay of the transition will not have much of an effect on the progress of the A-shares inclusion, Sinolink Securities analysts said in a research note.

China’s regulators have been trying for years to make the Chinese financial market more accessible to foreign investors. In January, regulators doubled the investment quota for the Qualified Foreign Institutional Investor program to $300 billion.

Earlier this month, Bloomberg has also begun adding yuan-denominated bonds issued by the Chinese government and policy banks to its Bloomberg Barclays Global Aggregate Bond Index, further opening China’s debt market to international investors with money in investments that track the index.

A previous version of the story incorrectly defined P-chips. They actually refer to the stocks of private Chinese companies listed in Hong Kong that are incorporated in places outside the Chinese mainland, such as the Cayman Islands, Bermuda and the British Virgin Islands.

Contact reporter Timmy Shen (hongmingshen@caixin.com)