Sat, Jun 02, 2018 - Page 11 News List

China’s stock profile to grow with MSCI debuts

WAIT AND SEE:Foreign investors remained cautious, despite the index compiler’s seal of approval, with one analyst saying there is no rush due to a limited upside


More than 200 Chinese companies yesterday debuted in MSCI Inc’s equity indices in what analysts called a small, yet significant step in China’s cautious drive to integrate with world markets and tame the volatile “casino” atmosphere of its stock exchanges.

Global equities index compiler MSCI for the first time added about 230 big-cap Chinese shares to its benchmark Emerging Markets Index and other indices used by foreign institutional investors to determine which shares around the world to buy.

The step is expected to lead to billions of dollars of new foreign investment in the Chinese shares by global funds that match their portfolios with MSCI indices.

However, China’s equities markets and corporate sector remain immature and prone to scandal. Weak corporate governance, hidden debt and transparency levels fall far short of Western standards, and MSCI is not jumping in with both feet.

The weighting of China-listed shares, or so-called “A-shares,” in the Emerging Markets Index, for example, was expected to reach only an initial 0.39 percent, a tiny fraction.

As such, the prospect of a future influx of foreign funds failed to excite investors yesterday.

Shares in Shanghai fell 0.7 percent, with no early boost to the companies listed for the first time on MSCI’s Emerging Markets Index as renewed fears of a global trade war gripped markets.

They included heavyweights such as Kweichow Moutai Co (貴州茅台), the world’s largest distiller, automaker SAIC Motor Corp (上海汽車) and consumer appliance giant Midea Group Co (美的集團).

“In the future, we will see more funds pour in, but not initially,” Huarong International Securities Ltd (華融國際金融) analyst Jackson Wong (黃志陽) said.

Despite MSCI’s imprimatur, foreign investors remain cautious over China’s volatile equities, where government meddling and the irrational decisions of millions of individual retail punters often trump fundamentals, Wong said.

“The upside is limited. A lot of people are playing the wait-and-see game and they are in no rush to get into A-shares right away,” Wong said.

However, MSCI said China’s weighting could dramatically rise in years to come if increased global scrutiny brought by yesterday’s move leads to hoped-for structural and governance changes in China.

China-related shares already comprise a significant chunk of the Emerging Markets Index thanks to big Chinese stocks like Alibaba Group Holding Ltd (阿里巴巴) and Tencent Holdings Ltd (騰訊), which list shares overseas.

“The A-shares market is one of the biggest in the world, with more than 3,000 stocks traded. If full inclusion were to happen, China equities could comprise 42 percent of the MSCI Emerging Markets Index, with A-shares alone accounting for about 16 percent,” MSCI head of Asia research Chia Chin-ping (謝徵儐) said in a blog post.

Martin Wheatley, an adviser to hedge fund Oasis Management Co Ltd, said the greater stake that institutional investors would have in China from MSCI inclusion will likely encourage more liberalization and less reliance on emotional retail traders.

“It’s less about integration than about maturity within China,” Wheatley told Bloomberg Television. “What you actually need is an institutional [investor] base within China, not just external to China, that values stocks and puts the sort of pressure on companies that you see elsewhere.”

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