Here’s What Analysts Are Saying About MSCI's Latest China Move

(Bloomberg) -- Analysts view MSCI Inc.’s decision to boost China stocks’ weighting in global benchmark indexes as more symbolic than actionable, though the decision will help support the trend of significant longer-term inflows into the market.

Here’s what market watchers are saying:

Aberdeen Standard Investments (Nicholas Yeo)

• Decision might seem momentous, but inclusion has “no immediate, practical application for us as a stock picker”
• “Many global investors will view China’s onshore stock market as a bit of a basket case, regardless of whatever MSCI does”
• Still, decision “can serve as a useful reminder of how Chinese capital markets are developing and perhaps prompt investors to think twice before concluding that the country’s A-share market is more trouble than it is worth”

JPMorgan Asset Management (Eric Bian)

• “Inclusion doesn’t change our approach to stock picking, although it’s further symbolic confirmation of the growing global importance of China equities”
• Active managers in China need to add resources and expertise on the ground, as greater global index inclusion means the hunting ground has become larger than the handful of blue-chip names relied upon in the past
• MSCI inclusion should act as a trigger for rising interest from U.S. and European institutional clients seeking strategic exposure to China A shares

Goldman Sachs (Kinger Lau)

• 168 mid caps will be added at a 20 percent inclusion factor in November, an upside surprise versus the originally proposed timeline of May 2020
• Overall inclusion factor increase could usher in a potential $70 billion of net buying to A shares, with the flows likely skewed toward consumer, health care and a select group of “foreign favorites”
• The rising representation of A shares in global indexes could create active allocation demand; still, recent investor feedback suggests “some asset managers are restrained/discouraged from investing in China A directly for various regulatory, accessibility, legal and fundamental reasons”

AMP Capital Investors (Nader Naeimi)

• Short-term effect unlikely to be meaningful, but it’s an encouraging development and a testament to the fact that China’s capital markets are opening up much quicker than many had thought

Fidelity International (Catherine Yeung)

• Move is positive for sentiment and "increases the likelihood for listed A-share futures in Hong Kong"

UBS Securities (David Rabinowitz, Gao Ting)

• Both active and passive portfolios will see rebalancing to account for these changes
• Decision will lead to a $67 billion fund inflow to the A-share market this year
• "Foreign investors as a group have surpassed insurers as the largest A-share holder, and with the help of the MSCI weight increase, are likely to rival domestic mutual funds soon"

BNP Paribas Asset Management (Caroline Yu Maurer, Paul Sandhu)

• Asset managers won’t “shift completely to the expanded benchmark immediately, but through a transition timeline taking into account the end-investors’ objectives”
• “In a hypothetical full-inclusion scenario, MSCI China (including A shares) could have a weight of 40% in MSCI Emerging Markets Index”

HSBC (Rakesh Patel, Bruce Pang)

• MSCI’s sharp increase in China weighting will reinforce trend of foreign investors being the most significant institutional players on the A-share market
• That will likely result in more than $600 billion of foreign inflows over the next five to 10 years
• "The latest weight increases will lead to inflows of over $10 billion in 2019 due to passive funds benchmarking the MSCI EM index." That total could reach $73 billion including all funds benchmarked to related indexes
• "The index is now a better representation of the broader market, with less weight on a few heavyweight sectors. This could possibly attract more funds"

Morgan Stanley (Laura Wang)

• MSCI’s inclusion of ChiNext and Chinese mid caps will attract up to $3 billion of passive flows on top of the $15 billion that Morgan Stanley previously highlighted
• Attractive valuations, low foreign participation, improved prospects for earnings growth, better onshore liquidity and better-than-expected MSCI outcome will keep drawing foreign inflows

Harvest Global Investments (Yannan Chenye)

• The decision, together with China’s opening-up policies, should mean up to $100 billion of foreign inflows into A shares this year, versus $45 billion in 2018

T. Rowe Price (Eric Moffett)

• The additions should translate into some $40 billion worth of inflows from active funds, assuming they allocate money according to the benchmark weight

--With assistance from Amy Li, Mengchen Lu, Joanna Ossinger, Lilian Karunungan, Christopher Anstey and Abhishek Vishnoi.

To contact Bloomberg News staff for this story: Ryan Lovdahl in Shanghai at rlovdahl@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl, Cecile Vannucci

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With assistance from Bloomberg