MSCI Inc.’s inclusion of Chinese-listed stocks, known as A shares, in its global indexes is an important symbolic step, but one that will have limited initial impact, according to analysts and market participants.
China’s stocks could account for 17 percent of the MSCI Emerging Markets Index in five years’ time, from less than half a percent now, Goldman Sachs Group Inc. strategist Timothy Moe said in a Bloomberg Television interview on Friday. Total inflows associated with MSCI inclusion will be about $22 billion after the second inclusion day later this year, he said, compared with $60 to $70 billion average daily trading value in China.
“Clearly, the initial impact right here, right now is modest,” Moe said. “But the symbolism in our view is very, very important.”
Market reaction to the inclusion was hardly euphoric on Friday, as the Shanghai Composite Index slid 0.5 percent, heading for its seventh loss in eight sessions.
JPMorgan Chase & Co., Bank of America Corp. and Bocom International Holdings Co. are among other brokerages expecting that the weighting of Chinese stocks in MSCI indexes will increase.
Hao Hong, Bocom International chief strategist:
“I think at the moment it’s a baby-step forward. After all, it’s less than half percent initially and three months later we will go up to 0.8 percent” Pension funds have to go in and buy half a percent of the index. We should look at the active international funds A-share market is driven by retail investors, and even institutional investors behave like them as the time frame for their performance measurement is very short.
Goldman’s Moe:
Taking A shares plus the Hong Kong-listed Chinese stocks, known as H shares, currently in the index, China stocks could be more than 50 percent of the MSCI Emerging Markets Index over the next five to eight years “Institutional investors globally will need to take this market very seriously” Likes both A and H shares, but A shares are incrementally more attractive as they trade more cheaply. There are also undiscovered or under-researched stocks in China that offer some alpha opportunities for overseas investors.
BoAML strategists including head of China equity strategy David Cui: