MSCI WILL DROP CHINA FIRMS THAT HALT TRADING TOO LONG

Companies removed from index may have to wait at least 12 months for reinclusion

SHANGHAI

BARELY a month after approving the inclusion of Chinese shares in its benchmark emerging market index, MSCI is warning that companies in China that suspend trading in their shares for too long risk being dropped.

MSCI head of research for Asia Pacific, Chin Ping Chia, said China was an outlier in global markets with too many suspensions in stock trading.

He said the index provider was closely monitoring the 222 China-listed A-shares that would be added to its Emerging Markets Index next year.

“If we find a company suspends for a long time, over 50 days, we will remove it from the index, and we will not bring it back to the index again for at least another 12 months,” said Chin.

The 12-month removal rule would be limited to Chinese companies. Firms from other markets who were removed from the index due to a long suspension of trading would be able to start a review process for reinclusion once they resumed trading.

MSCI’s comments come as the number of suspended stocks in China is at its highest level in a year after volatility in smaller companies prompted many to halt share trading in order to avert a crash in prices.

Suspensions have also increased among companies with larger capitalisation as Beijing steps up consolidation of stateowned enterprises.

An average of 265, or one in every 13, listed companies in China suspended trade last month, according to data provided by ZBen Advisors.

The consultancy said the number had risen every month this year and was up 30 per cent from an average of 202 in January.

Last year, MSCI cited arbitrary and long suspensions as a reason for vetoing the inclusion of shares listed on the mainland in its benchmark indices.

“This suspension issue in China is highly unique, both in the number and frequency,” said Chin.