S&P Dow Jones joins MSCI in China A-shares snub

18 July 2014   Category: News, Asia, China, Global, USA   By Derek Au

S&P Dow Jones Indices has decided against incorporating China A-shares into any of its global benchmarks due to prevailing investment constraints in the Mainland equity markets.

The announcement is the second snub for the A-shares market in just over a month, after competing indices provider MSCI in June reached a similar conclusion regarding the inclusion of Mainland equities within its own global products.

Taking into account the results of the indices provider’s consultation on the investable status of Mainland-listed equities, the index committee opted to exclude A-shares from its global benchmarks, which include the S&P Global BMI, S&P/IFCI Composite, Dow Jones Global Index, and Dow Jones Global Total Stock Market Index.

“Our decision was based on a survey of global investment managers and bankers including both our own clients and others,” David Blitzer, managing director and chairman of S&P Dow Jones Indices’ index committee, told Asia Asset Management via email.  

“Among the issues they cited are the uncertainty or unpredictability of quota requirements under QFII and RQFII arrangements, questions about capital gains taxation and currency repatriation,” he added.

S&P Dow Jones said that “significant improvements in accessibility” had been made, and that it would continue to monitor regulatory reforms and engage with the investment community on the matter.

Mr. Blitzer added that the consultation included managers with significant funds invested in Asia.

S&P Dow Jones is the latest indices provider to shut the door on China A-shares, following MSCI last month. MSCI did say, however, that it would review its decision next year.

Similar to S&P Dow Jones, MSCI is also concerned over accessibility to the Mainland’s equity market given that investors may not receive a RQFII or QFII quota that is sufficient to match the potential benchmark allocation. MSCI also addressed issues such as limitation on capital mobility and uncertainty regarding the applicable capital gains tax, as well as anxieties over trade execution due to the difficulty in using multiple brokers and the absence of same-day turnaround in the A-shares market.