MSCI weighs placing India on notice over investor access

Morgan Stanley Capital International (MSCI), one of the world's biggest index compilers, is placing emerging markets, including India and Brazil, on notice for limiting investor access.

The two countries, along with Turkey and South Korea, are “potential future examples” of markets whose weights could be capped on MSCI indices, the New Yorkbased company said in a presentation on its website on Wednesday.

All four countries restrict the use of their local data in derivatives created by offshore exchanges, which puts them afoul of MSCI’s anti-competition clause, and India also has a “lengthy and burdensome mandatory registration process” for foreign investors, MSCI said.

MSCI will now consult its clients and announce the results by December 31.

South Korea has a 15.6 per cent weight in the MSCI Emerging Markets Index. India is at 8.48 per cent and Brazil 7.2 per cent.

The presentation is part of a broader review on how funds access global equity markets and shows the influence of firms such as the MSCI in lobbying for institutional investors. Since MSCI indexes are tracked by money managers with trillions of dollars in assets, any cap could limit inflows into a market and force a change in national policy.

“It is expected that stock exchanges, which often have legal or natural monopolies, should not impose clauses in their provision of stock market data,” MSCI said. “The existence of these types of practices will lead to a negative assessment.” MSCI Chief Executive Officer Henry Fernandez has been vocal about his concerns regarding a dispute between the NSE and SGX.