Asian shares remained slightly weaker after recovering slightly from near three-week lows on Wednesday after U.S. index provider MSCI decided not to include domestic Chinese equities in its indexes.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent while Japan's Nikkei reversed earlier losses to rise 0.7 percent and both China's CSI 300 index and the Shanghai Composite rose 0.4 percent and 0.6 percent respectively. Hong Kong's Hang Seng index slipped 0.1 percent.

MSCI denied entry for China’s domestic equities for a third time, citing lack of sufficient time to access changes put into place back in February. The decision was a setback for President Xi Jinping who has been trying to raise the profile of mainland markets and turn the yuan into an international currency. The emerging-market index is tracked by investors with $1.5 trillion in assets. A spokesman for the index said it will reconsider inclusion in its 2017 review, while not ruling out an earlier assessment.

According to Paul Christopher, head global market strategist at Wells Fargo Investment Institute, “The MSCI decision signals that China remains a closed emerging economy that uses market techniques like freezing the market and making it illegal to short, using government funds to buy shares -- techniques that are not welcome among global investors. There are a number of market reforms in progress, but these are the decisions MSCI would want to wait for and examine.”

Healthy Capital Markets Needed

China's securities regulator said the decision won't impact the latest yuan reform and opening process of the country's capital markets, adding that the country needs to build long-term, stable and healthy capital markets.

The Chinese central bank set the yuan midpoint rate at 6.6001, the lowest level against the dollar since January 2011. It hit 6.6020 per dollar on the open, and was last trading slightly higher at 6.5978 in late afternoon trading.