Black­Rock boosts China ADR Hold­ings by 500pc

The Pak Banker - - COMPANIES/BOSS -

Black­Rock Inc. in­creased its hold­ing of shares in Chi­nese com­pa­nies trad­ing in the U.S by 500 per­cent fol­low­ing a de­ci­sion by MSCI Inc. to add the com­pa­nies to in­dexes tracked by ETF providers.

Amer­i­can de­posi­tary re­ceipts of com­pa­nies in­clud­ing Alibaba Group Hold­ing Ltd., Baidu Inc. and Inc. were pur­chased by Black­Rock, which man­ages the big­gest ex­change-traded fund track­ing the MSCI Emerg­ing Mar­kets In­dex.

The firm in­creased its com­bined hold­ings in the 14 ADRs to $4.3 bil­lion, ac­cord­ing to its lat­est dis­clo­sures, mostly from Dec. 31 or later and re­flect­ing fourth-quar­ter trades. The net pur­chases, now worth about $3.6 bil­lion, in­creased Black­Rock's hold­ings to 1.3 per­cent of the com­pa­nies' mar­ket val­ues, up from 0.2 per­cent, ac­cord­ing to data com­piled by Bloomberg.

MSCI said in Novem­ber it would in­clude 14 U.S.-traded Chi­nese eq­ui­ties in some of its largest in­dexes as part of its semi-an­nual re­view. Black­Rock's pur­chases un­der­score the in­creas­ing in­flu­ence on global as­set al­lo­ca­tion by in­dex providers like MSCI, whose bench­marks are fol­lowed by in­vestors with $9.5 tril­lion un­der man­age­ment. It also high­lights China's de­sire to have its do­mes­tic stocks join the MSCI in­dexes in an at­tempt to at­tract cap­i­tal and lift its sta­tus in global mar­kets.

"MSCI is ar­guably one of the most pow­er­ful fi­nan­cial in­sti­tu­tions glob­ally, as they pro­vide the rules fund man­agers have to abide by," Brendan Ah­ern, man­ag­ing di­rec­tor at Krane Fund Ad­vi­sors, said by phone. "For China, it is a mat­ter of re­spect and pres­tige and is an­other step in its at­tempt to at­tract for­eign cap­i­tal."

The move to in­clude the ADRs in in­dexes was part of MSCI's shift to broaden the cov­er­age of the gauges as com­pa­nies trade away from their home mar­kets. The changes took ef­fect af­ter trad­ing closed Nov. 30.

The New York-based money man­ager more than quadru­pled its stake in Alibaba, China's largest on­line re­tailer, with pur­chases now worth $1.3 bil­lion, and boosted its hold­ing in search en­gine Baidu al­most six­fold to about $1 bil­lion. Black­rock's pur­chases of ADRs of the coun­try's big­gest real-es­tate in­for­ma­tion web­site, SouFun Hold­ings Ltd., are worth about $25 mil­lion, push­ing the firm's stake in the com­pany to 1.1 per­cent.

"An ETF provider has to track what­ever the un­der­ly­ing in­dexes are do­ing, and if there is an in­clu­sion of an as­set, the ETF's goal is try to repli­cate that," Mo­hit Ba­jaj, di­rec­tor of ETF trad­ing so­lu­tions at Wal­lach­Beth Cap­i­tal, said by phone from New York. "This might seem to be a big in­crease, but it makes sense when you keep in mind that Black­Rock is the top ETF provider out there, and some of th­ese names are trad­ing a cou­ple of thou­sands of shares a day, and Black­Rock has to buy those names for a num­ber of its funds."

Other ETF man­agers, in­clud­ing Deutsche Bank AG, also in­creased their hold­ings in some of the com­pa­nies, but by much smaller sums. The in­clu­sion of the com­pa­nies in the MSCI in­dexes ap­peared to have had lim­ited im­pact on the ADRs' prices. On Nov. 13, the day af­ter the in­dex ad­di­tions were an­nounced, 11 fell and three rose.

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