Another nod for China stocks as MSCI ups weighting
The MSCI decision on Chinese-listed stocks is expected to bring in billions of dollars in additional foreign investment (Johannes EISELE)
Shanghai (AFP) – Index compiler MSCI said it would increase the weighting of Chinese-listed stocks in its benchmark indices and nearly double the number of companies included, a move expected to boost global acceptance of China’s often volatile equities markets.
The US-based MSCI, which last year added 236 China-listed large-cap stocks to its Emerging Markets Index for the first time, said in an announcement late Thursday it would quadruple those shares’ weighting in three stages by November.
MSCI, whose indices are used by international investment funds to decide which shares to buy around the world, also will add 168 new mid-caps in November, plus 27 stocks from the tech-heavy ChiNext board.
Inclusion on the benchmarks is expected to bring in billions of dollars in additional foreign investment since institutional funds buy shares of the China-listed companies — known as “A shares” — to match their portfolios to MSCI’s lists.
MSCI resisted adding A shares for years due to concern over Beijing’s meddling in markets, poor Chinese corporate governance, restricted foreign access to stocks, and high volatility.
But it said last year that A shares had become “too big to ignore”.
China also has taken a number of steps since last year to modernise and open up its financial markets, which MSCI cited as key factors.
Last year’s introduction of A shares had whetted foreign “appetite” for Chinese equities, said Remy Briand, MSCI’s managing director.
“The strong commitment by Chinese regulators to continue to improve market accessibility… is another critical factor that has won the support of international institutional investors,” Briand said.
The A-share profile remains small, accounting for just 0.71 percent of the Emerging Markets Index.
But the new shares and increased weightings will raise that to 3.3 percent by November, MSCI said.
China-related shares already make up more than 30 percent of the index due to the inclusion years ago of Wall Street-listed Chinese heavyweights Alibaba and Baidu, and Hong Kong-listed Tencent.
Chinese share markets tanked in 2018 but have rebounded this year as the government eases up on a debt crackdown and trade-war fears subside.
The benchmark Shanghai Composite Index was up nearly 18 percent this year as of Thursday’s close.
MSCI’s move is expected to fuel further gains, especially with the government stressing policy support for China’s markets and its slowing economy, said Bao Ting, a strategy analyst with Great Wall Securities.
“Attractive Chinese stock valuations and looser monetary policies will lure more foreign capital,” she said.
“It is prudently estimated that (MSCI’s latest move) could attract $60-$70 billion into the market this year.”
China has long shielded its markets but in recent years has widened foreign access to increase its global financial footprint.
It also plans to launch a Nasdaq-style tech board in Shanghai to deter big Chinese start-ups from listing abroad like Alibaba, Tencent and Baidu did.
A shares included by MSCI last year included heavyweights like Kweichow Moutai, the world’s largest distiller, automaker SAIC, and consumer appliance giant Midea.
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