Global fund man­agers bet­ting big on A-shares

China Daily (Hong Kong) - - BUSINESS - By OSWALD CHAN in Hong Kong oswald@chi­nadai­lyhk.com

In­ter­na­tional as­set man­agers said they were dy­nam­i­cally re­bal­anc­ing their port­fo­lios to in­vest in Chi­nese main­land’s A-shares af­ter the re­cent MSCI in­clu­sion, with in­vest­ment cap­i­tal ex­pected to pour into the world’s sec­ond big­gest eq­uity mar­ket by cap­i­tal­iza­tion — cur­rently val­ued at $7 tril­lion to $8 tril­lion.

Hong Kong-listed ex­change traded fund CSOP FTSE China A50 ETF, track­ing the per­for­mance of the FTSE China A50 In­dex, recorded a mas­sive in­crease in av­er­age daily turnover af­ter the A-share in­clu­sion in the MSCI in­dices on June 20.

As of July 19, the av­er­age daily turnover of the ETF in July had soared 75 per­cent to HK$571.6 mil­lion ($73.2 mil­lion), com­pared with av­er­age turnover of HK$326.4 mil­lion in May.

Ac­cord­ing to data from its main­land fund man­ager, CSOP As­set Man­age­ment, the ETF has had about 1.6 bil­lion yuan ($235.3 mil­lion) of net in­flows since the MSCI an­nounce­ment.

Global eq­uity in­dexes provider Mor­gan Stan­ley Cap­i­tal In­ter­na­tional an­nounced on June 20 that it would in­clude 222 A-share large mar­ket cap stocks in its MSCI Emerg­ing Mar­kets In­dex and MSCI China In­dex, rep­re­sent­ing 0.73 per­cent and 2.5 per­cent of the two in­dices re­spec­tively.

The in­cluded 222 A-shares are ac­ces­si­ble via the main­land’s two di­rect eq­uity mar­ket trad­ing links with Hong Kong and will not be sub­ject to the qual­i­fied for­eign in­sti­tu­tional in­vestor (QFII) quota. The in­clu­sion will take place in two phases dur­ing May to Au­gust next year.

“MSCI’s de­ci­sion shows that for­eign in­vestors pre­fer blue chips with good qual­ity, sta­ble earn­ings growth and com­par­a­tively low risk,” CSOP As­set Man­age­ment’s Chief ETF Strate­gist Alvin Li told China Daily.

“Fol­low­ing the MSCI in­clu­sion, it will push up the value of large caps,” he added.

The FTSE China A50 In­dex com­prises the top 50 A-shares by mar­ket cap­i­tal­iza­tion listed on the Shang­hai and Shen­zhen bourses. With a for­ward price-earn­ings ra­tio of around 10 times and earn­ings growth pick­ing up, the in­dex is

The greater im­pact of China will lead to new in­vest­ment op­por­tu­ni­ties ...” Ian Hui, global mar­ket strate­gist at JP Mor­gan As­set Man­age­ment

poised to gain, an­a­lysts main­tain.

Be­sides pas­sive in­dex fund in­vest­ing, the MSCI in­clu­sion also cre­ates new in­vest­ment hori­zons for ac­tive fund man­agers, spark­ing in­sti­tu­tional in­vestors’ in­ter­est to study A-shares at the stock-pick­ing level.

“The greater im­pact of China will lead to new in­vest­ment op­por­tu­ni­ties and de­mand for more lo­cal re­search on Chi­nese com­pa­nies,” pre­dicted Ian Hui, global mar­ket strate­gist at JP Mor­gan As­set Man­age­ment.

“The A-share in­dex will pro­vide a bet­ter rep­re­sen­ta­tion of the Chi­nese econ­omy and di­ver­si­fied ex­po­sure to the cur­rent Chi­nese eq­uity uni­verse,” noted In­vesco’s Chief In­vest­ment Of­fi­cer for Asia, ex­clud­ing Ja­pan, Mike Shiao.

An­a­lysts said the 222 A-share stocks will bring added weight­ing of in­dus­tri­als, health­care, con­sumer staples, ma­te­ri­als, in­for­ma­tion tech­nol­ogy and telecom­mu­ni­ca­tions — as well as en­ergy — to the in­dices.

At the same time, A-shares also con­tain a num­ber of un­usual com­pa­nies that are not com­mon in the off­shore mar­ket — such as house­hold fur­nish­ings and chem­i­cals groups, re­new­able power pro­duc­ers, and biotech­nol­ogy and phar­ma­ceu­ti­cal com­pa­nies.

An­a­lysts said in­vestors had spe­cific tings on their shop­ping lists in the port­fo­lio bal­anc­ing ex­er­cise.

Bank of Sin­ga­pore eq­uity re­search chief Sean Quek said port­fo­lio re­bal­anc­ing af­ter the MSCI in­clu­sion had seen pas­sive fund flows of $2 bil­lion - $3 bil­lion and ac­tive flows of $10 bil­lion - $12 bil­lion into var­i­ous A-share in­vest­ment funds — which com­pared with the av­er­age daily A-share mar­ket turnover of $65 bil­lion in the year to date.

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