Foreign flows into China stocks tepid ahead of MSCI inclusion

The June 1 inclusion will see around 230 Chinese large-cap stocks, known as A shares, added to MSCI’s emerging markets benchmark index with a 2.5 percent partial inclusion factor. (Reuters)
Updated 01 June 2018
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Foreign flows into China stocks tepid ahead of MSCI inclusion

  • Inclusion in the global index will spawn other funds and boost interest in Chinese companies
  • More foreign participation in Chinese stocks could help improve investment culture, and press China-listed firms to bolster their corporate governance

SHANGHAI: Foreign buying of Chinese stocks was tepid on Thursday as benchmark indexes rose on the last trading day before mainland shares join MSCI’s emerging markets index.
The rebalancing of portfolios by global fund managers, as well as from some active investors, had led to expectations that there could be a jump in foreign investment to China’s capital markets.
The June 1 inclusion will see around 230 Chinese large-cap stocks, known as A shares, added to MSCI’s emerging markets benchmark index with a 2.5 percent partial inclusion factor. The second phase of the inclusion will take place on Sept. 3.
China’s MSCI entry will integrate the world’s second-biggest equity market, with a total stock market capitalization of more than $8 trillion, into the global financial system.
On Wednesday, MSCI tweaked the final list of companies, dropping embattled Chinese telecommunications gear maker ZTE Corp. and four other firms whose shares have been suspended from trading.
Over the past two months, foreign investors have been ramping up investment in Chinese shares, including retailer Wangfujing Group, Shanghai Flyco Electrical Appliance and spirit maker Sichuan Swellfun , despite rising volatility triggered by fears of a Sino-US trade war.
ZTE has been caught in the crossfire of the dispute and trading in its shares has been halted for two weeks.
While fund manager strategies are hard to predict, many analysts have forecast inflows of $10 billion around June 1. Passive fund managers seeking to replicate the index are widely expected to buy some $1 billion of A-shares during the final hour of trading on Thursday.
By the midday trading break, northbound flows into Shanghai and Shenzhen amounted to about 3.85 billion yuan ($601.2 million) — a fraction of the more than 100 billion allowed each day, but still higher than in recent days.
“I expect foreign inflows will pick up toward the end of trading day as passive funds are obliged to buy China stocks ahead of the inclusion,” said Yang Hai, strategist at Kaiyuan Securities.
“To some extent, it would help lift sentiment in a weak market,” he said, noting that foreign demand may have guided some domestic money into banking and consumer stocks.
Although the MSCI-related inflows will initially be small compared to the size of China’s stock market, inclusion in the global index will spawn other funds and boost interest in Chinese companies.
“On a longer-term basis, the opening of China’s capital markets represents a once-in-a-lifetime market event and will be one of the primary ongoing themes in the region for many years to come,” said Will Stephens, Deutsche Bank equity strategist.
More foreign participation in Chinese stocks could help improve investment culture, and press China-listed firms to bolster their corporate governance, said Bin Shi, head of China Equities at UBS Asset Management.
“Index inclusion will bring more long-term institutional investors into the A-shares market...which will change the market structure,” Shi said, noting that the market is currently dominated by retail investors.
“As overseas investors become more active in the market, so listed companies in China will be under tougher scrutiny and they’ll have to bring their disclosure and governance practices into line with international standards.”


DiplomaticQuarter: Astana highlights ties with Riyadh

Updated 2 min 26 sec ago
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DiplomaticQuarter: Astana highlights ties with Riyadh

  • Kazakhstan plays an important role in the Islamic world through its membership of the OIC and the development of the Islamic Organization for Food Security within the OIC
RIYADH: The Kazakhstan Embassy in Riyadh celebrated the 27th Independence Day of Kazakhstan on Monday. The republic gained independence from the Soviet Union on Dec. 16, 1991.
Riyadh Deputy Gov. Prince Mohammed bin Abdulrahman was the chief guest on the occasion. Senior Saudi officials, diplomats and other dignitaries attended the celebrations.
Ambassador Bakyt Batyrshayev spoke about the fast-growing ties between Saudi Arabia and Kazakhstan. He said: “Kazakhstan and Saudi Arabia are strategic partners and they have many common features and interests. We are proud of our strong, enduring partnership and pledge to continue our work to strengthen it.”
An art exhibition was also held at the embassy on the sidelines of the celebration. The two-day event showcased the work of renowned artist Ahmed Al-Salama.
The Kazakh ambassador said: “Kazakhstan has become a modern country with a successful economy, which is now among the top 50 in the world. Our strategic goal is to join the 30 developed countries of the world by 2050.”
He also highlighted the role his country is playing in the world of diplomacy.
“Kazakhstan has become the place of summits for the Organization for Security and Co-operation in Europe, the Organization of Islamic Cooperation (OIC), EXPO 2017, Asian Olympic Games, Syrian negotiations and many other important meetings,” he added.
The diplomat said Kazakhstan was elected as a non-permanent member of the UN Security Council for 2017-18.
“During its term Kazakhstan focused on issues such as nuclear disarmament, preventing military confrontations at the regional and global levels, counterterrorism and supporting sustainable peace,” he said. He also referred to the deployment of peacekeepers by Kazakhstan as part of the UN Interim Forces in Lebanon.
Highlighting the economic achievements of his country, the envoy said: “Over the past 20 years, Kazakhstan has raised direct foreign investments worth $300 billion, and now we rank 36th among 190 countries in the World Bank’s ‘Ease of doing business index.’”
He described his country as an economic and political bridge between East and West.
“Kazakhstan will always be a friend and partner to all countries especially Saudi Arabia,” said the envoy.