A passive benchmark has been left unchanged — and yet it is a big event for world markets.

MSCI, the leading indexer of emerging stock markets, has decided not yet to go through with a proposal to start a partial admission of China’s domestic A-share market into its flagship emerging market index. As funds with assets worth $1.7tn are benchmarked against this index, the effect is profound.

The earliest that A-shares can now be added is May 2017 — at a point when the current rally in A-shares, which has seen them more than double inside 12 months, may well have gone into reverse.

MSCI made clear that talks with the Chinese authorities are ongoing, that it is continuing on a road map that leads to eventual inclusion, and that a decision to admit A-shares could come at any time.

But the bottom line, for now, is that China has failed to convince the indexers on three points: that the process for allocating quotas to foreign investors needs to be “more streamlined, transparent and predictable”, that capital needs to be more mobile to allow daily liquidity for all investment vehicles, and that the issue of ownership of separate accounts in the new Shanghai-Hong Kong Stock Connect programme needs to be clarified.

All these issues have already been under intense discussion. But the argument that appears to have held sway is that while some investors can gain access to A-shares and others cannot, it would be unfair to judge them against a benchmark that includes A-shares.

MSCI wants to admit A-shares — which are plainly now a huge part of the emerging markets world — but for now it is saying the authorities have not done enough.

China’s authorities had plainly been very keen to earn inclusion in the index for A-shares, despite claims by many sceptics that this would suck foreign money in at the top after the A-share market had already doubled within 12 months.

Meanwhile, the implications for the fund management industry are profound. China’s scale is making it ever harder to allocate assets within emerging markets.

According to MSCI, if all A-shares were to be included at their full weighting, China would take up 43.6 per cent of the emerging markets index. That accurately reflects the importance of China to the emerging world but makes the job of asset managers close to impossible.

As Nick Smithie of Emerging Global Advisors in New York puts it, “China is too big for this index”.
正如紐約Emerging Global Advisors的尼克?斯密西(Nick Smithie)所說,“中國對這個指數來說太大了”。

Questioning whether anyone would feel that an “emerging markets” fund that was almost half in China was truly diversified

he predicted instead that there was likely to be a proliferation of new indices.

He suggested there will soon be a boom in categories like “Emerging Markets ex-China”, “Asia ex-China” and “China A-shares only”.

As non-events go, this was a big one.