U.S. equity index provider MSCI Inc. again put off Tuesday the inclusion of China’s A shares in its influential Emerging Markets Index, citing the need for greater market accessibility to global investors.

    It was the third year in a row that MSCI left the Chinese mainland shares out of the index, which guides the allocation of billions of dollars of investments.

    Inclusion could help steer more foreign portfolio investment into China at a time when the country is fighting off capital flight and a downturn in foreign direct investment.

    China has provided greater access to its domestic, yuan-based capital markets in the past year, MSCI said, including offering U.S. investors a US$38 billion investment quota last week for the first time to buy Chinese assets.

    But MSCI said China still maintains problematic restrictions including a 20 percent monthly repatriation limit, which it called “a significant hurdle for investors,” and too many restrictions on new financial product offerings.

    “The decision highlights a much bigger issue, which is the resistance among global investors to allocate into yuan assets, despite the fact China is home to the world’s second-largest equity market and third-largest bond market,” said Peter Alexander, CEO of investment consultancy Z-Ben Advisors in Shanghai.

    He added that the decision put global investors “on the wrong side of history.”

    China’s securities regulator said yesterday any global benchmark index that doesn’t include China’s A shares is incomplete, but the decision wouldn’t affect reforms to open its markets.

    Remy Briand, MSCI global head of research, told reporters yesterday that China’s reform program was moving in the right direction but investors had concerns over the process for allocating investment quotas and monthly limits on repatriating capital.

    He said investors also needed more time to assess if new share suspension rules would be effective in preventing a repeat of last summer, when more than half of China’s listed companies halted trading in their stocks to sit out the crash.

    “There have been a lot of significant improvements made recently by the Chinese authorities to improve accessibility for global investors. However, some of them are relatively recent, so we need a little bit of time to assess the effectiveness of these measures,” Briand said.

    (SD-Agencies)