MSCI lists 234 Chinese stocks for index inclusion in boost to capital markets

The inclusion of the shares is expected to draw more foreign capital into Chinese stocks.
Updated 15 May 2018
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MSCI lists 234 Chinese stocks for index inclusion in boost to capital markets

  • MSCI's emerging market index is used as a benchmark for around $1.6 trillion worth of global assets.
  • Stocks included in the index automatically attract significant investment from passive funds such as exchange

MSCI, the US index publisher, said on Tuesday it will include 234 Chinese large cap stocks in its global and regional indexes on June 1, setting the stage for capital markets in the world’s second-biggest economy to get a boost from a potential surge of foreign money.
In a quarterly review, MSCI ejected nine companies and added 11 from the proposed MSCI China A Inclusion Index, slightly altering the expected weighting that the Chinese stocks will have in MSCI’s emerging market index. It did not explain why some companies were added or removed.
The 234 yuan-denominated stocks, or China A-shares, will represent an aggregate weight of 0.39 percent in the MSCI Emerging Markets Index at a 2.5 percent partial inclusion factor during the first step of the China entry. The second phase of the entry will take place in September, which will double A-shares’ aggregate weight to 0.78 percent.
The long-awaited inclusion of Chinese stocks in MSCI’s indexes next month is expected to draw increased foreign capital into China’s markets, where foreign ownership now amounts to about 2 percent.
The inclusion “sends a message that global investors can’t afford to ignore onshore China equities anymore,” Howard Wang, Head of Greater China Equities at J.P. Morgan Asset Management, wrote in a note.
The US asset manager expects that in the next five years, China A-shares’ weighting in the MSCI EM index could rise to 9 percent, bringing in about $230 billion of index flows.
The top five companies added to the China A Inclusion Index on Tuesday by market cap were Shanghai Electric Group , Zhangzhou Pientzehuang Pharmaceutical Ltd. Heilan Home Co. Ltd, Zhejiang Century Huatong Group Co. and Perfect World Co. Ltd. .
The MSCI China A Inclusion Index is heavily weighted toward financials, consumer, and real estate.
The firms include China’s biggest lenders such as the Industrial and Commercial Bank of China, Bank of China and China Construction Bank , the country’s top consumer brands Kweichow Moutai and Qingdao Haier, as well as China’s major metal producers including Baoshan Iron & Steel.
Telecommunications equipment maker ZTE Corp, which has been buffeted by trade frictions between China and the United States, remained on the list and will be among those included.
Although much of the impact has been priced in already, the imminent China MSCI entry has rekindled interest in Chinese blue-chips recently.
Raymond Ma, portfolio manager at Fidelity International said he believed the inclusion of A-shares in the MSCI indices would help the A-share market to become more sophisticated, improve liquidity and be driven by fundamentals rather than speculative factors.
“I am most constructive on consumer, information technology and industrials sectors after the MSCI inclusion,” he said.
“Thanks to ongoing consumption and industrial upgrading in China, these sectors are likely to deliver sustainable and solid growth in the next three to five years. We expect them to outperform in the medium to long term.”
Over the past two months, Chinese mutual fund houses have raised over 10 billion yuan through a dozen newly-launched funds that track MSCI’s A-share indexes, while April’s foreign inflows via the Shanghai-Hong Kong stock connect hit a monthly record.
MSCI said last June that Chinese stocks could initially represent a 0.73 percent weighting in the MSCI EM Index at a 5 percent partial inclusion factor, with the inclusion to be completed in a two-stage process, on June 1, and on September 3.
MSCI’s latest announcement means the China A-share weighting would rise slightly to roughly 0.78 percent.
Irmak Surenkok, portfolio specialist at T. Rowe Price, said that foreign investor participation in A-shares increased by about 30 percent since MSCI’s China inclusion announcement last year.
However their share was still modest at little over 2 percent, compared with nearly 40 percent foreign participation in other Asian markets such as Taiwan and Korea, he said.
“While many investors focus on top-down indicators such as GDP growth or the debt burden, in our view, it is the underlying bottom-up opportunities that illustrate how compelling and still under-appreciated the China investment story is.”
Darwin Hung, index analyst at Instinet Pacific Ltd, said that investors don’t expect MSCI to accelerate the inclusion of A-shares in the short-term.
However, “everyone will still be interested to know when MSCI will expand the list to include midcap and non-Stock Connect stocks as that would greatly increase the weighting of A-shares in its Emerging Market Index,” he said.


Saudi banks, Dubai shares give Gulf markets a timely boost

Updated 24 January 2019
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Saudi banks, Dubai shares give Gulf markets a timely boost

  • The Dubai index was up by 0.9 percent with Emirates NBD, its largest bank, adding 2.1 percent and its largest listed developer Emaar Properties gaining 2.2 percent
  • Nasdaq-listed DP World increased 0.7 percent after increasing its stake in its Australia unit

DUBAI: The Dubai stock market snapped a three-day losing streak on Wednesday, boosted by its financial and property shares, while Saudi Arabia rose on the back of its banks.
The Dubai index was up by 0.9 percent with Emirates NBD, its largest bank, adding 2.1 percent and its largest listed developer Emaar Properties gaining 2.2 percent. Gulf Arab economies are expected to grow at a slower pace than previously forecast, a quarterly Reuters poll of economists found, as oil output cuts, lower crude prices and weaker global growth put pressure on regional economies. Amlak Finance rose 2.2 percent after announcing a renegotiation of restructuring terms with its financiers to allow more flexibility in adapting to “current market conditions.” Nasdaq-listed DP World increased 0.7 percent after increasing its stake in its Australia unit.
The port operator will spend at least $250 million buying back some shares in its Australian port terminals unit. Saudi Arabia’s index rose 0.8 percent, with nine out of 10 banks rising.
Al Rajhi Bank was up 0.6 percent and Samba Financial Group closed 1.7 percent higher. Petrochemical investor Alujain added 1.5 percent after an update on the fire at its affiliate’s plant.
The company said it now expects the NATPET plant to start operating all units by the end of September.
The Egyptian blue-chip index was up 0.2 percent with its largest listed bank Commercial International Bank gaining 4.2 percent.
The Egyptian Exchange on Wednesday canceled all transactions made the previous day in local firms Sixth of October Development and Investment Company (SODIC) and Madinet Nasr for Housing and Development (MNHD).
The move followed SODIC’s decision against a takeover of MNHD and involved their shares being suspended on Wednesday as the bourse reset prices. Global Telecom Holding jumped by 10 percent before trading on its shares were suspended, pending a statement from the company after VEON Ltd, a major shareholder in the firm, said it was considering taking it private.