Many investors were disappointed around the globe with MSCI decision of not adding China A-Group share to The MSCI Indices. It has been delayed for sometime, but many fund managers are taking sigh of relief of not adding China A group shares. Reason being the volatile nature of Chinese stocks, Even though they have returned 152% in past 1 year but correction as and when it comes are very fast down 4-6% in a day which gives many sleepless nights to many fund manager looking at the volatility of their portfolio.
Bears in India were specifically waiting for the decision, as if added can see almost 1Billion$ sell off in India market and could have lead to break of sacrosanct 8000 level.
Chinese stocks are around 4 times more volatile than the current MSCI World index in other words, if asset allocators maintain current equity weightings then portfolio risks will soar (if China is added). But given that most risk budgets are fixed, rising volatility in the equity portion of portfolios (from adding China) will require rotation out of equities and into bonds (or lower vol assets) in order to maintain VaR limits.