If China wants the west’s money to flow into its domestic A-shares market, it has to be prepared to let that money flow out again. That is the brutal but necessary and correct message that MSCI has delivered by delaying once more A-shares’ inclusion in its benchmark emerging markets index.
The decision is perhaps more of a surprise than it was a year ago, when a similar announcement of a delay helped catalyse the end of a brief bubble in A-shares, and a subsequent fall. As the A-shares market is now the world’s second largest by market capitalisation, outstripping even Japan, the case for their inclusion in a broad global benchmark is obvious.
The likely impact, at least for the short term, will be negative. China has worked desperately to earn inclusion, showing that it matters to the Chinese authorities, and the decision is hence an embarrassing reverse, and a knock to confidence.