Authers’ Note: Oil on Bearish WatersPremium
At last there is white smoke coming out of MSCI’s chimney. The compilers of the most widely tracked emerging markets index have announced that they will start to include domestic Chinese A-shares in their main all-world and emerging markets indices, beginning in a year’s time. They will only include them at a rate consistent with 5 per cent of the A-shares market’s total value for the time being, so the effect will be small. But it will effectively require many investment houses to start researching mainland China in a serious way for the first time; this is still a very big deal. I am inclined to think at first blush that MSCI has the balance right.
Perhaps more surprising was MSCI’s decision not to re-admit Argentina to the club of emerging markets. It remains a frontier market for the time being. This is a reasonable judgment, but it is startling that it comes within days of Argentina’s success in launching a 100-year bond. Normal orthodoxy is that equity markets are far more gullible and prone to over-enthusiasm than bond markets. Not when it comes to Argentina, it appears. Either that or the remarkably strong protections for bondholders created by the precedents set in Argentina’s legal battle with the holdouts from its last default really have made its bond market a safe place, in a way that its stock market is not. We will find out.
I am writing a column on this that will explore the issue in more detail. When it is available it should be on the FT site at this address.