MSCI defers China inclusion in its global benchmarks

Move comes as a temporary relief for Indian markets

In what could be a major relief for Indian markets, global index provider MSCI has decided against including locally traded China shares in its global benchmark indices. 

MSCI has said certain issues need to be resolved before the so-called China-A shares can be added to its indices. 

The New York-based index provider said that it expects to include China-A shares in its global benchmarks after remaining issues related to market accessibility have been resolved. 

"MSCI and the China Securities Regulatory Commission (CSRC) will form a working group to contribute to the successful resolution of these issues," it said.

Inclusion of China-A shares could have triggered massive outflows from the Indian market as its weight would have got reduced in the MSCI indices. Passive flows, or exchange traded fund (ETF) money, has been one of the major contributors to domestic portfolio flows.

Domestic brokerages had pegged the impact at $3.8 billion of outflows from the Indian market.

The relief to the Indian market, however, could be temporary. 

MSCI has said it will announce the decision to include China-A shares in the MSCI Emerging Markets Index "as soon as the issues it has outlined are resolved." 

The index provider has said the inclusion could even take place "outside the regular schedule of its annual Market Classification Review."

MSCI has also said it will include the MSCI Pakistan Index in its 2016 Annual Market Classification Review for a potential reclassification to emerging markets.