MSCI's Chinese Stock Puzzle

Among money managers, MSCI is a well-known financial company that sells portfolio risk analytics and manages widely followed stock market indexes. It’s now a target of criticism after floating a proposal to include domestic Chinese stocks in its Chinese and developing-nation indexes starting next year. The idea is getting a cold reception from investors, who call it “unfair,” “silly,” and “crazy.”

The problem is that China limits foreign access to local securities, known as A shares. Under existing rules, only overseas institutions that have been awarded licenses and quotas by two different regulatory bodies can invest in them. “We stand very firmly on the side that it doesn’t make sense,” says Matthew Sutherland, investment director for equities at Fidelity Worldwide Investment. “It seems to me crazy to have an international benchmark that’s got a share class in it that the world can’t invest in.”