India-Singapore futures row a ‘concern’ for MSCI CEO
The NSE went to court this week to prevent the Singapore Exchange from starting a contract to replace the SGX Nifty futures contracts it discontinued in February.business Updated: May 24, 2018 12:08 IST
The chief executive officer of MSCI Inc., one of the world’s biggest index compilers, said his firm is “concerned, quite a lot” about the dispute between exchanges in India and Singapore that threatens a popular offshore futures contract.
New York-based MSCI is monitoring the situation and consulting its clients about how they view the matter, CEO Henry Fernandez said in an interview on Bloomberg Television. The fight over Singapore Exchange Ltd.’s Indian futures may leave international investors with no easy way to hedge their exposure to one of Asia’s biggest markets.
“A lot of our clients use derivative instruments,” Fernandez said. “We have no problems with them developing trading onshore, we welcome that a lot, but not to kill trading offshore.”
India is among several emerging-market countries that’s seeking greater involvement in global finance while keeping control of capital flows. It’s been promoting a tax-free trading zone in Prime Minister Narendra Modi’s home state, known as Gift City, as an alternative to offshore centers.
International investors were stunned in February when India’s national exchanges said they would cut ties with overseas bourses. The move effectively killed SGX’s Nifty 50 futures, one of its most popular offerings, which had been developed in partnership with National Stock Exchange of India Ltd. NSE this week went to court in Mumbai to prevent its Southeast Asian counterpart from starting a replacement contract.
“In a world like we live today, there’s so much competition for capital all over the world, and most countries -- if not all countries -- are opening up and letting the free flow of capital,” Fernandez said. “Nobody is talking about putting in restrictions, but in this case India is.”
In the wake of the February announcement, MSCI issued a statement calling the move “anti-competitive” and suggesting it could lead to a downgrade of India’s emerging-market status. The index firm, whose products are tracked by funds with about $12 trillion in assets, hasn’t announced any further moves.
“To us, it’s a matter of principle, methodology and the accessibility of a country,” Fernandez said.
Fernandez also discussed the upcoming inclusion of Chinese-listed shares in the MSCI Emerging Markets Index, which will see 234 stocks added to the global benchmark. The firm has said the initial inclusion is expected to channel around $17 billion in passive funds into China, a figure that could rise to $35 billion in coming years.
“There are some that are going to wait, but the majority of people will put their toe in the water,” he said.
While the initial weighting of China-listed companies will be just 0.7% of the index, that will increase faster than expected because investors are willing and the stock connect that provides access to mainland China from Hong Kong is working well, Fernandez said. The attitude of policy makers in Beijing is another factor.
“There is no question in our mind that they are really intent on opening up the country,” he said. “It’s not an ’if,’ it’s simply a ’when,’ and it’s simply a way to do it in a stable, measured way so it doesn’t create any kind of upheaval or instability in the financial markets.”