Foreign investors bet billions on China blue-chips joining MSCI index


Reuters

CORRECTED-Foreign investors bet billions on China blue-chips joining MSCI index


(Corrects unit of ETF outflows from yuan to euro in 2nd to last
paragraph)
    By Samuel Shen and John RuwitchSHANGHAI, June 20 (Reuters) - Foreign investors are betting
U.S. index publisher MSCI will finally agree to include
China-listed shares in its emerging markets benchmark this week,
stepping up their buying of Chinese blue-chips that could gain
from inclusion in the index.
    In May, overseas investors bought a net 19.8 billion yuan
($2.90 billion) of mainland shares via the "Connect" schemes
that link the Hong Kong and China markets, pushing up volumes by
 56 percent from the previous month.
    "We believe this was due to foreign investors' expectation
that MSCI will announce the inclusion of A-shares this week,"
said UBS strategist Gao Ting, noting that northbound investors
have mostly chosen shares in the consumer and pharmaceutical
sectors over the past month. Net inflows so far this month have
reached nearly 15 billion yuan.
    The flows into Chinese firms such as Midea Group <000333.SZ>
and Gree Electric Appliances <000651.SZ> came ahead of MSCI's
decision on whether to open up its Emerging Markets Index (EMI)
<.MSCIEF> to mainland-listed China shares. The announcement is
due shortly after 4.30 pmNew York time on Tuesday, June 20
(4.30am Wednesday in Hong Kong).
    If China A shares were to be included, consumer and real
estate stocks in particular would see their weighting increase -
at the expense of financials - under MSCI's new methodology
unveiled in March, which will cut the number of constituents to
169 from 448.
    MSCI has previously declined to include China in the EMI
three times amid investor complaints about curbs on repatriating
capital from China and concerns over the country's large number
of suspended stocks. The newly adopted methodology is designed
to address these issues and make inclusion more likely, analysts
said. [nL1N1JA12M]
     China's securities regulator said on Friday that it hopes
MSCI can open its index to China shares, but if not, Chinese
capital market reform will not be derailed. [nL3N1JD34O]
    All the Chinese stocks set to be included are big-caps and
can be easily accessed by foreigners through the "Connect"
trading link between mainland and Hong Kong markets.
    Morgan Stanley sees a more than 50 percent chance of a "Yes"
decision, expecting a 0.5-1 percent rise in the Shanghai
Composite Index on a positive result, although it noted that
actual implementation would not take place until June, 2018.
    Eligible Chinese stocks would represent a weighting of only
0.5 percent in the MSCI EM index.
   "In the case of a 'No' decision: The A-share market might
first react with a minor decline of 1.0 percent," Morgan Stanley
said in a recent report.
    Asset managers have noted that inclusion in the index after
the three previous rejections is likely this time, with the
weight of money flowing into Chinese A shares evidence of that
conviction.
     Over the past two weeks, an average of 1.2 billion yuan has
flowed into Chinese shares via the Connect each day, nearly 30
percent more than the average during the Jan-May period.
    Shenzhen-listed Chinese home appliance maker Midea Group Co
<000333.SZ> - potentially a heavyweight in the EMI - has
witnessed a surge in foreign interest since MSCI in March
unveiled its new methodology for China inclusion.
    Overseas holdings in Midea via the Shenzhen-Hong Kong Stock
Connect doubled to 4.16 percent, from 1.94 percent three months
ago, with about 230 million shares acquired by foreign investors
during the period.
    Founder Securities <601901.SS>, another potential EMI
constituent, has seen foreign holdings in the brokerage under
the Shanghai-Hong Kong Stock Connect surge to 17.2 percent, from
just 10 percent three months ago.
    In another sign of rising foreign interest in Chinese
big-caps ahead of the MSCI decision, qualified foreign
institutional investors have visited a total of 29 Chinese
listed companies so far this month, 23 of which have stocks in
the Connect schemes, the Shanghai Securities News reported on
Tuesday.
    However, some investors appear retreating just ahead of the
MSCI announcement, exchange-traded fund (ETF) data suggests.
    ETFs tracking China stock indices saw 14.5 million euro
($16.17 million) of outflows on Friday, reversing a trend of
steady inflows seen since the beginning of this month, according
to independent ETF selection platform TrackInsight.
    That suggests some investors are thinking again about the
likelihood of inclusion in the index, TrackInsight said.

($1 = 6.8338 Chinese yuan)
($1 = 0.8967 euros)

 (Reporting by Samuel Shen and John Ruwitch; Additional
reporting by Michelle Price and Liu Luoyan; Editing by Eric
Meijer)
 ((samuel.shen@thomsonreuters.com;  +86 21 6104 1789; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))

Keywords: MSCI INDEXES/CHINA (CORRECTED, PIX)



This article appears in: World Markets , Economy , US Markets , Stocks
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