Market to watch chinese stocks after msci review next week – analysts

MSCI will post the results June 14, after 5:00 p.m. Msci world index usd ET on the website (, with two conference calls to follow at 7:00 p.m. Msci world net total return ET Tuesday and 3:00 a.m. Msci database ET Wednesday.

Back in May, MSCI said, “three MSCI Country Indexes are currently included on the review list of the 2016 Annual Market Classification Review: MSCI China A and MSCI Pakistan Indexes for a potential reclassification to Emerging Markets and MSCI Peru Index for a potential reclassification to Frontier Markets.”

Since then, the market has speculated on whether China A shares will be added to the MSCI EM index and how this will play out in other MSCI indexes, where China shares are already included.

“A Shares” are shares of Chinese companies that are incorporated on mainland China and traded in Shanghai or Shenzhen. Msci returns These shares are quoted in reminibi (yuan).

“Trading suspension and anti-competitive clauses are new focus points this year,” CS strategists said. Msci world history “In addition, the dark clouds of large-scale market intervention and distortion have not cleared away.”

If the shares are approved, “initial inclusion” may give roughly a “4.0% weighting in MSCI China” and roughly a “1.1% weighting in MSCI EM to 421 or 271 stocks,” Credit Suisse said.

Also, there should be only a small impact on “bigger Global GEM or APAC portfolios or dedicated China portfolios with no prior A-share investment,” the strategists said.

“Since the anticipated small weighting will be shared by hundreds of stocks, the stocks pursued most after the inclusion may still be large-cap household names with reasonable valuations and proven track records,” Credit Suisse said.

Deutsche Bank FX strategists said in a note quoting their index strategists that “the inclusion of Chinese companies listed on the MSCI EM should result in a reallocation of weighting for the various other EM countries in the index, including Korea.”

If included, “China’s weighting would increase from 24.6% to 26.5% at the end of May 2016, while Korea’s weighting should decrease from 15.5% to 15.1%,” with Korean outflows at $4.7 billion, DB said.

Mansoor Mohi-Uddin, senior market strategist at RBS said even if MSCI does announce the inclusion of China A shares in the various indices, this will not take effect until June 1, 2017.

Mohi-Uddin cited an estimate by RBS China Economist Harrison Hu that only 5% of the free float of the 421 qualified A shares will likely be included next week.

“This would result in China having weightings of 1.1% in the MSCI EM index, 1.3% of MSCI Asia ex-Japan and 0.1% of the MSCI Global index,” Mohi-Uddin said. Msci world index weights And this “would potentially result in $21.9 billion of capital inflows, but actual inflows will be smaller as active funds tracking the MSCI indices may decide to hold off shifting their allocations in the near term.”

Mohi-Uddin said a 100% free float inclusion of China’s A-shares could result in about $379 billion in new inflows, according to Hu’s estimates.

However, such flows would be spread out overtime and not seen immediately, he said, adding that “it took six years for Korean and nine years for Taiwanese equities to be fully included in the MSCI indices.”

JP Morgan strategists noted that if MSCI does announce the partial inclusion of China A shares in its Equity indexes June 14, the FTSE will likely to follow later in 2016.

The potential is for these holdings rise to as much of 12% and 10% for equities and fixed income, in terms of assets under management, but the increase will depend greatly on “currency convertibility,” which China aims to have by 2020.

On equities, China’s share in MSCI EM index is expected to rise to 40% from around 26%, which assumes “the abolishment of the quote system, full liberalization of capital mobility restrictions and alignment of international accessibility standards,” and the FTSE equivalent would be $44%, with no quota, JPMorgan said.

“Both numbers, 40% for MSCI and 44% for FTSE, incorporate a current foreign ownership limit of 30%; If this foreign ownership limit were to be lifted and Chinese shares were included at their free float adjusted weight, China’s share in Emerging Market equity indices would rise even further to above 50%,” the strategists said.

JP Morgan estimates that if Chinese government bonds were to enter into the three leading global bond indices, China could see close to $155 billion in inflows “by both passive and active managers benchmarked to these indices.”

The Shanghai Composite Index closed flat at 2,927.159 Wednesday. Msci world index historical prices After peaking Jan. Msci europe index ticker 4 at 3,538.689, the index fell to 2,638.302 Jan. Msci index ticker 27 and has subsequently traded in a range of 2,638.963, seen Feb. Msci world local currency 29, to 3,097.165, seen April 13.