Two Weeks to A-Share Inclusion Decision

FINTS: New rule removes another barrier to A-shares’ inclusion in MSCI
According to media reports, at the height of the stock market crash in mid-2015, more than 1,400 companies had halted trading, and some firms extended those halts for months on end to try and ride out the volatility.

When MSCI rejected including A-share to its emerging markets index in June 2015, it raised three major concerns, namely 1) process of QFII quota distribution, 2) restrictions on capital mobility, and 3) recognition of beneficiary ownership. Chinese regulators have since made concrete steps to address some of the obstacles identified in the MSCI review last year.

But such arbitrary trading halts by listed companies have become a new barrier, when MSCI consulted investors about including A-shares into its benchmark emerging markets index in April, Caixin reported earlier this month.
Also more on the Third Board: China releases tier management draft plan for New Third Board
China’s NTB became a nationwide trading platform three years ago. Designed to gather investment for companies which have not yet gone public, its listing requirements are set to allow smaller companies to participate in the financial market. However, in the past three years, the number of firms listed on the NTB has grown dramatically to 7,394, compared with less than 3,000 A-share listed companies in total. The conditions of these companies vary greatly because the threshold for the market is relatively lower than that of the A-share market. Some of the NTB-listed companies have either never been traded at all or have traded for a while before suddenly becoming empty shells.

In order to enhance liquidity of the NTB and facilitate capital allocation of investors, China’s regulator has decided to distinguish the best stocks from the average, and will divide the companies into two levels, namely the base level and the innovation level.

Companies hoping to be selected into the innovation level must meet one of three sets of criteria, namely 1) net profit and return on net assets ratio; 2) revenues, compound growth rate and capital stock; or 3) market value, shareholders’ equity and the number of market makers and qualified investors.

According to the current criteria, around 16% of the listed companies on the NTB will be selected into the innovation level.
A-shares are rallying ahead of MSCI's decision on June 14.

1 comment:

  1. What happens to the analogue when you show Chinext measured in dollars?