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.


Careem looks to raise up to $200 million in China

Updated 20 November 2018
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Careem looks to raise up to $200 million in China

  • Investment bank China International Capital Corporation (CICC) is advising Dubai-based Careem, but it was not immediately clear when or if a deal would be finalized
  • Careem said in October it had secured $200 million in a new funding round from existing investors

HONG KONG: Careem, Uber’s main Middle East rival, is looking at raising between $100 million and $200 million from Chinese investors, a source with direct knowledge of the matter told Reuters.
Investment bank China International Capital Corporation (CICC) is advising Dubai-based Careem, but it was not immediately clear when or if a deal would be finalized, the source said, adding there was a lack of familiarity and interest among Chinese investors in Middle Eastern start-ups.
Beijing-based CICC and Careem both declined to comment.
Reuters reported on Monday that CICC and New York-based investment bank Jefferies were both advising Careem on potential investment options and capital raising, including a possible Middle East M&A deal with Uber.
Careem, which counts German car maker Daimler and China’s largest ride-hailing company DiDi Chuxing among its other backers, competes head-to-head with Uber in most of the major cities in the Middle East.
Careem said in October it had secured $200 million in a new funding round from existing investors, and that it expected to raise more to finance expansion plans.
That investment, combined with previous fund raising and company growth into new markets and segments, gave Careem an estimated valuation of more than $2 billion.
Reuters reported in March that Careem was in early talks to raise as much as $500 million.