MSCI ADDING CHINA STOCKS AT BAD TIME
Foreigners dumping mainland-listed shares at record pace as dispute with US returns to centre stage
OVERSEAS investors can soon own more Chinese stocks — the trouble is they don’t seem to want them. Foreigners are dumping mainland-listed shares at a record pace, just as MSCI Inc prepares to expand their weighting in its benchmark indices.
Already this month, 17.4 billion yuan (RM10.83 billion) of “A” shares have been sold through trading links with Hong Kong, putting May well on track to surpass last month’s 18 billion yuan outflow.
Chinese stocks remain some of the best-performing in the world this year, yet about US$1 trillion (RM4.17 trillion) was wiped from the country’s equity markets in just three weeks as the trade dispute with the United States returned to centre stage.
Concern that Beijing may pare back stimulus plans also weighed: the Shanghai Composite Index has dropped 11 per cent from a peak last month.
“Renewed fears of further trade escalation had invited foreign investors
to have second thoughts,” said Jingyi Pan, a market strategist at IG Asia Pte Ltd, here.
MSCI will boost the inclusion factor of large-cap “A” shares to 10 per cent from five per cent and also add stocks listed on the tech-heavy ChiNext board on May 29.
The weightings are set to be increased again later this year.
The move will draw foreign inflows from index-tracking funds, though that doesn’t guarantee a boost for the market: the initial inclusion of “A” shares last year did little to stop the worst rout in a decade.
Inflows from the inclusion are minor compared with the size of China’s market, which is dominated by retail investors.
Recent volatility in Chinese shares wouldn’t have an impact on MSCI’s plans to raise the weighting of large-caps this year, according to Zhen Wei, director of China research at MSCI Inc.
However, it could mean a change in the number of midcaps that were included in the November review, he said in an interview, here, last Thursday.
“If ‘A’ shares ‘underperform’ other emerging markets on relative terms, it will be reflected in market weight”, and vice-versa, he said.