China stocks rise as MSCI tightens its embrace
The MSCI decision on Chinese-listed stocks is expected to bring in billions of dollars in additional foreign investment (Johannes EISELE)
Shanghai (AFP) – Chinese shares rose Friday after global stock index compiler MSCI said it will significantly raise China’s profile in a key equities benchmark, a move expected to help normalise the country’s often volatile markets and attract billions in investment.
The US-based firm, which last year added 236 China-listed large-cap stocks to its Emerging Markets Index for the first time, said late Thursday it would quadruple those shares’ weighting in three stages between May and November.
It will also add 168 new mid-caps and 27 stocks from the tech-heavy ChiNext board.
MSCI inclusion is expected to spur foreign investment inflows as institutional funds buy shares of the China-listed companies — known as “A-shares” — to match their portfolios to MSCI.
Chinese stocks endured an up-and-down session on Friday but the Shanghai Composite Index closed 1.80 percent up, or 53.06 points, at 2,994.01.
The Shenzhen Composite Index, China’s second exchange, closed 1.20 percent higher, or 18.51 points, at 1,564.84.
MSCI had resisted adding A-shares for years due to concern over Chinese corporate governance, Beijing’s meddling in markets, restricted foreign access to stocks, and their high volatility.
But China has moved to modernise and open up its markets, which MSCI cited as key factors in the latest decision.
“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,” said Remy Briand, MSCI’s managing director.
A-shares now account for just 0.71 percent of the Emerging Markets Index but that will increase to 3.3 percent by November, MSCI said.
Firms related to China but not traded there already make up more than 30 percent of the index, however, due to the inclusion years ago of heavyweights like Wall Street-listed Alibaba and Baidu, and Hong Kong-listed Tencent.
– ‘Very excited’ –
Chinese stocks tanked in 2018 but have rebound around 18 percent this year as trade-war fears subside and the government has rolled out a series of market-supporting policies.
Bao Ting, a strategy analyst with Great Wall Securities, said MSCI’s latest decision could lure an additional $70 billion in foreign funds into A-shares.
“Attractive Chinese stock valuations and looser monetary policies will lure more foreign capital,” she said.
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.
Many shares already in the MSCI index or which will be included gained on Friday.
Industrial and Commercial Bank of China rose 1.74 percent to 5.85 yuan and China Construction Bank added 2.23 percent to 7.34 yuan.
Fibreglass producer China Jushi gained 2.83 percent to 11.27 yuan and feedstuffs producer Guangdong Haid Group rose 1.55 percent to 26.85 yuan.
In housewares, Zhejiang Supor jumped 4.98 percent to 64.56 yuan and Wuxi Little Swan added 0.81 percent to 55.80 yuan.
Fund management company T. Rowe Price welcomed MSCI’s decision, saying the greater global scrutiny could nudge Chinese companies toward better corporate governance.
“We are very excited about the opportunity set in this market and its growing relevance to investors outside of Asia,” said Eric Moffett, manager of T. Rowe Price’s Asia Opportunities Fund.
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