Thursday, 18 January, 2018

China's top regulator pledges reforms after MSCI decision

Great Wall of China China's top regulator pledges reforms after MSCI decision
Erik Tate | 24 June, 2017, 01:21

Investor reaction across Asia to the inclusion of China's domestic stocks in one of USA index provider MSCI's popular benchmarks was muted on Wednesday, but some Asian markets can expect to suffer from outflows when the indexes are rebalanced.

iShares MSCI Japan ETF (the fund), formerly Ishares Msci Japan Index Fund, is an exchange-traded fund.

Past year the index company cited monthly limits on repatriating cash, frequent trading suspensions and exchange pre-approval requirements as reasons for its decision.

"We think the losers in Australia during this migration will be those stocks where passive funds are bigger holders", they wrote. At the same time, MSCI also reduced the number of stocks for inclusion to 222 large-caps, which are available on the stock connects and have minimum trading-suspension history.

Looking beyond the potential benefits of increased demand for China A-shares ahead of the major index changes, Chinese markets exhibit strong macro fundamentals.

CLSA said in a report that the inclusion will cause India's weightage in the MSCI EM Index to reduce by 6.51 basis points from 8.92 percent to 8.85 percent. The stock's 50 day moving average is $34.59 and its 200-day moving average is $32.63. iShares MSCI Taiwan Index has a one year low of $26.38 and a one year high of $35.53.

"The inclusion of China shares on MSCI's Emerging Market index would displace shares of other emerging markets", said Jeffrey Lucero from RCBC Securities.

But he still considered it positive on China stock market.

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.

Britain kicks off Brexit negotiations with EU
That would raise the odds of talks collapsing, meaning when the U.K faced a period of uncertainty and sweeping tariffs. Barnier has said talks on a trade deal can not even start until sufficient progress has been made on the other issues.

Still, for many investors, China's local shares represent the future.

Argentina's Merval fell more than 5% after MSCI said it isn't.

Concerns about the ability of foreign investors to move freely into and out of A shares led MSCI to withhold its approval in previous reviews, though. On the China side, the authorities have made large strides towards improving investors' market access, reducing stock suspensions and (reportedly) offering some concession on the preapproval requirement.

Over the past two weeks, an average of 1.2 billion yuan has flowed into Chinese shares via the Connect each day, almost 30 percent more than the average during the Jan-May period.

Chinese stocks were, however, little moved by their addition to MSCI's benchmark indexes, as investors weighed the symbolic importance of inclusion against the limited impact on short-term inflows.

Last year, internationally listed Chinese stocks proved a better bet than their local counterparts.

"It's really in the hands of the Chinese stakeholders, they are dictating the timing". They may also be used to assist the trader figure out proper support and resistance levels for the stock. But for markets in the region, "the impact may be second-order and likely only be felt in the longer term".

"We are encouraged by the recent progress on financial deleveraging, as it shows that Beijing is committed to do what's needed despite the short-term pains".


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