China's Stocks Are Not Ready For 'Prime Time,' CNBC's Bob Pisani Says

Morgan Stanley Capital is a leading provider of global equity indices and announced on Tuesday it will not include China-listed A shares in its Msci Inc MSCI MSCI Emerging Markets Index.

"There have been significant steps toward the eventual inclusion of China A shares in the MSCI Emerging Markets Index," said Remy Briand, MSCI Managing Director and Global Head of Research. "They demonstrate a clear commitment by the Chinese authorities to bring the accessibility of the China A shares market closer to international standards. We look forward to the continuation of policy momentum in addressing the remaining accessibility issues."

Related Link: Some Positive Indexing News For A Frontier Markets ETF

While the argument can be made that a major index of emerging markets should include Chinese companies, the timing is a factor. Although the company is the world's second largest economy after the United States, the country is simply not ready for "prime time," at least according to CNBC's Bob Pisani.

Pisani noted that only China-based companies that trade on international markets, such as Hong Kong or in the United States, are included in the MSCI Emerging Markets Index. He added that there is a lot of ongoing pressure to get Mainland-listed shares on to the index since the collective capitalization of Chinese stocks is around $6 trillion.

In fact, China-based-but-Hong Kong listed stocks represents 25 percent of the entire MSCI Emerging Markets Index.

"MSCI essentially said China is still not ready for prime time," Pisani said.

Pisani did acknowledge that the Chinese authorities have done a lot over the past year to improve the local stock market's transparency and improve access for international investors.

Pisani continued and pointed out two main areas of concerns that contribute to the negative sentiment. First, the government needs to lift or at the very least improve limits on foreign withdrawal of funds. Second, investors need time to assess the effectiveness of policy changes that have already been made.

The ETF

The iShares MSCI Emerging Markets Indx (ETF) EEM tracks the MSCI Emerging Markets Index, and is currently up 1.56 percent on the day, trading at $33.46.

Over the past year, the ETF is down approximately 16 percent, while year-to-date, the ETF is up almost 4 percent.