Asia Has China Market to Thank for Trading Surge

(Bloomberg) -- To get a true sense of just how much of a game-changer China’s A-share inclusion in Asia’s benchmark indexes really is, just take a look at volume.

Trading on the MSCI Asia Pacific Index ballooned to a 44 billion shares on Feb. 25, surpassing the previous record of 32.6 billion reached in May 2009, according to data compiled by Bloomberg going back more than two decades. Since then, volume on the benchmark gauge has topped that previous high an additional six times in the past two weeks.

Asia Has China Market to Thank for Trading Surge

The influx of trading appears to be largely concentrated in Hong Kong and China, with volume in both markets hitting highs at the end of February. The CSI 300 Index saw volume of almost 36 billion on Feb. 26, the highest since November 2015, and Hang Seng Index trading has stayed elevated since hitting 3.6 billion shares in February.

While the current high volume in China is still well short of that seen in 2015, the key difference this time around is the nation’s domestic stocks are now a part of MSCI Inc.’s global gauges -- and with the index provider upping its exposure to A shares in three steps this year beginning in May, that influence will only grow.

There are risks to this deepening relationship of course, and the staggering losses of as recently as last week serve as a fresh reminder. And don’t forget the regulatory concerns. MSCI last week urged China to consider easing foreign-ownership restrictions in its market after dropping Han’s Laser Technology Industry Group Co. from its China indexes because the stock had reached the 28 percent limit that halted buy orders.

Still, the timing of this increase appears to be fortuitous for investors. Chinese equities have been on a tear to start the year, surging more than 20 percent to return to a bull market after a brutal 2018 when Shanghai was the world’s worst-performing major stock market. That’s translated into a 10 percent rally from a December low in the wider Asia Pacific index.

Optimism a long-awaited trade deal with the U.S. is near and indications policy makers have put their deleveraging campaign on the back burner in favor of stimulative measures including tax cuts are helping fuel a more positive outlook in the face of slowing forecast growth and continued weak trade indicators across the region.

“China’s recent stimulus measures are starting to pay off,” said Luca Paolini, chief strategist with Pictet Asset Management, said in a report to clients. “China’s market is policy-driven and policy right now is pumping up liquidity provision and fiscal spending, boosting Chinese and EM stocks.”

Stock-Market Summary

  • MSCI Asia Pacific Index up 0.5%
  • Japan’s Topix index up 0.6%; Nikkei 225 up 0.5%
  • Hong Kong’s Hang Seng Index up 1%; Hang Seng China Enterprises up 1.1%; Shanghai Composite up 1.9%; CSI 300 up 2%
  • Taiwan’s Taiex index little changed
  • South Korea’s Kospi index little changed; Kospi 200 little changed
  • Australia’s S&P/ASX 200 down 0.4%; New Zealand’s S&P/NZX 50 down 0.5%
  • India’s S&P BSE Sensex Index up 1%; NSE Nifty 50 up 1.2%
  • Singapore’s Straits Times Index little changed; Malaysia’s KLCI down 0.9%; Philippine Stock Exchange Index down 1.1%; Jakarta Composite down 0.3%; Thailand’s SET little changed; Vietnam’s VN Index little changed
  • S&P 500 e-mini futures little changed after index closed down 0.2% in last session

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