This is daybreak asia in hong kong, just after 7 00 a. M. I am betty liu. Yvonne and i am yvonne man. Club. Joining the msci they also added 53 more stocks to this conclusion. A Long Time Coming for china, a lot of questions. Betty given we were not the ones flags prominently, the stock connect china put in place. That being a key reason why they decided to include these shares. Yvonne they mentioned it was a bringingger, overall, a boost to the hong kong and shanghai markets today. Markets a after oil slumping into the bear market, from the highs we saw in february. Lets see how new zealand is performing this morning, continuing this negative tone. Stocks down 0. 2 . Still a slightly higher dollar story, the kiwi at. 7243 against the dollar. Energy stocks in australia, those are the ones to watch. Under pressure today with wti. Tumbling to the lowest level in nine months overnight. The market getting fatigued on these opecled cut. Futures heading lower in sydney. Nikkei futures ending 0. 8 up. Futures down 35 , according to chicago nikkei futures. Dollaryen, 110. 35. We expecting boj minutes from speaking in kuroda tokyo this afternoon. Outside of china it seems pretty risk off. Very much so, those oil prices are a big factor in the u. S. Markets. Lets pull up the boards and see how wall street ended the day. It ended lower, tech shares back and forth, giving up those gains we saw yesterday. Nobody can make up their mind on where to go. Nasdaq down almost 1 , dow, down 63 perp points. Lets pull up oil prices, really weighing on the markets and these Energy Shares. Downa look at nymex crude, on the 15 over the past month. 20 ,y falling now, over into bear territory. We will see how much lower wti crude can go. Now, first word news. President saysed he is glad about this months Interest Rate hike and is willing to be patient over mixed economic data. However, he may be more skeptical about a more neutral rate of 3 in coming years. Though inflation remains a concern, he says it is sufficient to take the slack out of the labor market. Inflation has been sluggish in the United States. That is not all bad, by the way, for those of us who lived through the 1970s. Getting to 2 inflation has been uneven and sluggish. Treasury secretary Stephen Mnuchin says the u. S. Government would only introduce ultralong bonds if there is a market for regular issuances. A group is assessing investor demand for debt, at 50 and 100 years. Committee including jpmorgan, bank of america, and Goldman Sachs will also give feedback. It is something we are seriously considering. I do think it is a tool that the government should strongly consider. Are reaching out through the Borrowing Committee and investors to see what the demand is. We do not want to greater program that is a completely oneoff program. We want to see if it is an important part of our borrowing capabilities. A survey by the pboc found investorsnkers and more optimistic about the Economic Outlook is in the last quarter. It rose for both banking and business sectors, while more households are betting on better prize prices. Forward is to save 1 billion by shipping production to china from mexico. Manufacturing is expected to begin in the second half of a year after they closed the plant in michigan. It is the first major change made by ceo and marks it complete break from previous strategy. President trump has advised automakers against businesses overseas. A former executive charged with conspiracy to commit fraud, among with raising prices toqatar. To qatar. They faced charges, along with the bank itself. Dayal news 24 hours a powered by more than 1700 journalists and analysts in more than 120 countries. I am mean a melendez. Nina melendez. This is bloomberg. Betty chinese stocks gain direct entry to msci indexes, marking a milestone, a defining moment, in beijings effort to get into the second largest market. Lets discuss what happened behind the scenes. Fernandezman henry joining us from new york. happy to see you in hong kong. Betty i am in an appropriate ropos place. Ap you are outlining different theors on what would push decision over the edge into a yes. Point that defining finally convinced the committee to say, lets do this this year, lets do it now . You, wet the time i saw were in the middle of the consultation process. We ended up talking to about over 100 Institutional Investors from all the regions of the world. There was strong support with the proposal we put in place. We were able to get stronger support to revise it to a larger number of large caps. That was one thing that was important. The second thing, a lot of investors were concerned about the data issues to create all sorts of investment vehicles. That is what happened in the last few weeks. With theogether Shanghai Exchange and others, we were able to solve a lot of those issues. I remember a month ago you said those were some of the big issues. Two kind of curious, this step process. Next year they will be included, but in two separate parts. What is the thinking behind that . Henry and has a great deal to do with trading limits, the ceilings of the amount of assets that can flow through the connect program. After you do all the competitions on the number of shares and market cap, and look at what could investors put into through the shanghai and Shenzhen Connect Program through hong kong, the ceiling was restrictive. Therefore, what we are able to do is spend time with regulators as well. They will Work Together with us to see if we can get it done in one step. The announcement was for two steps, to make sure we need leave no flexibility. Yvonne i want to say hello to you. You mentioned this twostep process could change. One issue you raised was the daily limit on the stock connect to be abolished or significantly expanded. Do you get any indication from chinese officials or the exchanges that they are willing to do that before these inclusion dates . Henry we get quite a lot of good feedback and positive views from them that they will work very closely together with msci at that time to see how they can facilitate the flow of assets into the country. Hoped we may be able to do it in one step. What we know today, the daily limit exists. We want to be cautious that if there is a change to that, it will have to be done in two steps. I want to bring up briefly for our viewers a look at the makeup of the msci index. It shows you in this bar chart, i am not sure if you can see that where you are in new york, theyellow line shows you countries in asia that make up the index. 2010, it hasrom creeped higher and higher to now 62 are made up by asian countries, with the rest in europe, africa, and others, south america. Some are saying this is perhaps becoming very asiafocused, maybe too concentrated now. What you say to that . Henry it reflects the realities of the weights and Market Capitalization in various regions of the world. Aia has been very prosperous, lot of economic growth, great companies. Particularly the Technology Companies coming out of china and hong kong and new york. The Taiwanese Companies are in technology as well. On the flip side, many emerging markets, particularly in south america and russia, they are commodity exporters and some are oil exporters. There is been some declines in equity values in those places, itd therefore reduction in wa for a lot of asian countries. Itty before we had to break, am curious described to me that decision and a meeting to the extent that you can. Was it one of the most intense meetings, was there a lot of debate . Described to me because this decision was not made lightly by any means. The entire world was watching. Henry we spent a good deal of time on internal deliberations on our msci committee. I huge amount of time in consultation with our clients. We reflected a lot of those to that shanghai and shenzhen exchanges. They were positive about working with us in making this thing happened. Particularly a very strong role and they the vice chair president of the Shanghai Exchange. They engaged directly with us to figure out a way this could happen. Yvonne stay with us, we will continue more after this short break. Plenty more to come. Another will discuss chinas inclusion in that decision from time,t 9 10 hong kong 11 10 out of sydney. This is bloomberg. Betty we are counting down to asias first major market open this morning. We are looking at japanese futures, down about 0. 3 . Watching as we count down to the hong kong in chinese markets. They are opening at 9 30 a. M. Hong kong time. I am betty liu. Yvonne i am yvonne man. Lets bring back msci chairman and ceo, Henry Fernandez in our new york studio. Talking about this china inclusion, essentially some arguing this is a watereddown proposal from the msci. Just north of 7. 3 , higher than what the initial basel was. But still, i drop in the ocean when it comes to china in the context of em. Did msci give into this . I have china made concessions, but not exactly letting go, either. Henry when we were trying to do was great a path forward between the needs of those Institutional Investors around the world, and the conditions in the marketplace inside china. We tried in the prior consultations to do a larger, significantly larger increase. We did not get a lot of response positive from those investors. So we scaled it back a bit to 169 stocks. That was well received, to the point in which we were able to ,ncrease it to a larger number 222 large caps. We left out the midcaps, we are hoping they would be included at some point in the future. 0. 73 , a small slice of the pie. When do you see that four c foresee that amount raising . Henry it is a smaller weight than we would have liked at this early stage. But it is extremely historic, momentous, and symbolic. It opens up a path forward. We are trying to great an environment in which those investors get to experience directly investing in china and get to meet with companies. Regulators and exchanges get to see those investors in action, and get everyone to the table. Our plan is to keep going in future years. But the path and the speed will depend a great deal upon those things, the experience of those investors, the willingness on their part to field that a feel that a bigger weight is warranted wait is warranted. And the stabilization of the market. We are looking for the lifting of the trading limits and further relaxation of data issues. Betty are those the major ones . I am curious, if after this decision that they made, do you expect even bigger reforms . What kind would they be . beyond the three you mentioned . Henry we definitely get a view from inside china but there is a strong commitment to further opening up of the equity markets. They want to do it in a stable way, which is logical and makes sense for such a big market in such a big country. We have no hesitation in our belief the country wants to open up. The question is, at what speed they would like to do that . That is what we are going to watch and therefore determine the path of further increases. That speed could likely quicken, no . Betty henry i would think so. In bringing them two parties to the table, the investors and the players, that will help immensely in getting everyone experience, getting to see the companies investing, hopefully getting good returns. Everyone will feel more comfortable and open up even further. Betty before we move on to other countries, we are part of the were looking at the press release. One final thing on china. The midcaps you mentioned a few minutes ago obviously small caps not included. What conditions need to be there . Henry the next inclusion is probably going to have a larger inclusion factor, 5 of the Market Capital to those large capitalization stocks. The midcaps. Y, the second category is the one we are focused on. We would like to expand the universe of shares that are available to International Investors. Yvonne lets move on and talk about saudi arabia, which is also another Pivotal Moment for the gulf nation as well. You take a look at them on the watchlist for possible inclusion. What was the thinking behind that . What made it happen in the last two years . The kingdom really opened up the market for foreign investors. Henry a lot. The last three or four years we have been working a lot with local exchanges, them cma, Capital Market authority, and senior people in the country. They have been following a very consistent, programmatic path of reform. It started in the fall of last year with regulatory reform, in terms of the lifting or increase in Foreign Investment limits. In april, they did a major stock market reform, with better delivery versus payment systems, twoomise of two plus instead of two plus zero. They have been moving very fast and very aggressively. That has allowed us to put the country on the watchlist as and consultation as soon as possible. Betty they have been on hyperspeed you might say. I am try to get into them msci. Ipo, thatsaudi aramco being significant for the country. What needs to happen from now until 12 months later, to make that decision be a yes . Is there anything specifically you are looking for . Henry adding to what you said, these decisions come all the way down from the top, the deputy crown prince of the country has been focused. The minister of finance, energy, stockmarket authorities, and the like. Quite a unified front and that has been welcomed by all. What we are now doing is trying to begin to gauge the reaction by International Investors. Many of them have not yet invested in the country. They need to set up accounts, a process, and get a sense of and experience in doing it. That is a process that is likely to take a year or so before a decision can be made. Yvonne betty thank you so much for joining us on this historic a in china and asia. Henry fernandez, chairman and ceo of msci. Do not forget, our interactive function, you can watch us live in see this interview like we just did. Dive into any securities or bloomberg functions we talk about. Thecan become part of conversation by sending us instant messages during our shows. This is for bloomberg subscribers only. This is bloomberg. Yvonne lets do a quick check of the latest business headlines. Row with qualcomm turning ugly, saying qualcomm has an illegal business model. There was a january complaint that accuses qualcomm of trying to monopolize the chip game. Result, betty toshiba in the final stage of negotiations to sell its flash memory chip unit. Sources say the board will meet later wednesday to review a series of offers. Downain consortium has put 19 billion. Ay ishe backing of inc j seen as critical. The bears are back in oil markets as it dips on the global glut. We look at what is moving the energy market. This is bloomberg. Yvonne it is 7 30 a. M. Wednesday. Cloudy, but no rain. That is an upside. 30 minutes away to asias first major market open. Watching the Hong Kong Market after the defining moment, msci allowing them to join the club. Betty it is a huge moment for the chinese and also markets. It is like groundhog day. 7 30 p. M. Tuesday in new york. Markets closed a touch later touch lower with Energy Prices dragging it down. I am betty liu. Yvonne i am yvonne man. You are watching daybreak asia. Lets get first word news. Msci has approved chinese domestic shares for inclusion in its benchmark indices, a landmark step in chinas integration with the Global Financial system. It would give the almost 7 trillion a bigger market and everything etf to 401 k retirement plans. Shares of the included comprising. 7 of their market gauge. When you do other computations on the number of shares and market cap and all what couldou look at investors put into the market, through the shanghai and Shenzhen Program with hong kong, the ceiling was restricted. Therefore, we can spend time with the regulators and see if we can get it done in one step. Part of the announcement is on to steps, to make sure we leave no flexibility. Nina msci had held off on reclassifying saudi arabia, argentina, and nigeria. It has been added to a potential watchlist of emerging market status. They call it an immense achievement. Argentina will remain a frontier market for leased another year, while nigeria and will not be classified as that new market. Theresa may settles into a political reality on wednesday, with a help billy rewritten program. It will be without the usual pageantry and marks a rare, twoyear parliamentary session. The whole event will be overshadowed by discussion of how long may can cling on to power. Of silence by pushing back a rate hike and his concerns about brexit. He highlighted the risk to consumer spending. Toney says he is in no rush raise Interest Rates. In the coming months, i would like to see the extent to which consumption growth is offset by other components of demand. As wages begin to firm, and generally, how the economy reacts to tighter financial conditions, and the reality of brexit negotiations. The new south korean president says he would like to draw the north into talks and even meet kim jongun before the end of the year. Jaeing to cbs, moon said he needs to play a larger role in geopolitical politics, and that a visit to pyongyang was a good idea. Dealing with the north is tricky. Kim jongun is not a rational person. But President Trump mentioned he is even willing to talk to kim jongun over a burger and said it would be an honor to meet him. I believe President Trump much further than i do. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am nina melendez. This is bloomberg. Yvonne back to our top story, mscis decision to add china to its benchmark indices. Adam haigh joining us live from sydney. News, the etf move on offshore yen just a little bit. What is the likely impact when the market opens today . Adam i think overwhelmingly, the senses of relief. We have been waiting for this for some time. There are been many years when it keeps getting kicked back. Now we are finall