Index compiler MSCI adds Guangzhou Auto and Pop Mart to its China stock gauges, drops Didi in semi-annual review

  • Some 33 stocks are being added to the MSCI China Index, while 44 are being removed, the index compiler said
  • The changes will be effective after the market close on May 31

Index compiler MSCI has added Guangzhou Automobile Group and Pop Mart International Group to its China stock gauges and removed ride-hailing giant Didi Global as part of its semi-annual global index review.

The latest rebalancing covers benchmarks such as the MSCI China Index, which mostly comprises Chinese companies trading in Hong Kong and the US, and the MSCI China A Onshore Index, which tracks companies trading on the Shanghai and Shenzhen exchanges, New York-based MSCI said in a statement on its website. The changes will be effective after the market close on May 31, it said.

The changes to the MSCI China Index constituents are expected to draw the most attention from investors, as the gauge has a representation in the MSCI Emerging Markets Index, which is widely tracked by global fund managers, particularly those who run passive funds.

“The announcement will boost share prices for new included stocks, as there will be passive purchase orders from funds who follow the index components,” said Castor Pang Wai-sun, heard of research at investment services firm Core Pacific-Yamaichi. “In the short-term, these stocks have a chance to outperform the market.”

Some 33 stocks will be added to the MSCI China Index, with the three biggest in terms of market cap being Guangzhou Auto, Bloomage Biotechnology, a drug maker on Shanghai’s Star Market, and Hong Kong-listed ship leaser Orient Overseas International, it said. Toymaker Pop Mart will be included for the first time.

Meanwhile, 44 companies will be removed, with Didi Global being the most prominent one. The Chinese ride-hailing giant, which Beijing is investigating for data security breaches, plans to withdraw its US listing and is considering a new offering in Hong Kong. Other deletions included Shenzhen-listed car-parts maker Mianyang Fulin Precision, Hong Kong-traded Agile Group Holding and Gome Retail Holdings.

“[The deletions] can help to stabilise the index performance … It may not be good enough for driving the index to go up in the near term, but certain pressures will be relieved,” said Pang.

The MSCI China Index has lost 52 per cent since a record high in February last year, as the gauge reels from a year-long crackdown by Beijing against the nation’s biggest tech platforms, rising US borrowing costs and a moderation in China’s growth.
Morgan Stanley said that the decline in the gauge was probably in the late stage of a bear market, while volatility will remain elevated due to the tail risks.

While overseas traders have sold 29.8 billion yuan (US$4.4 billion) of Chinese onshore shares this year amid global turbulence, Morgan Stanley said the move was only tentative as such sell-offs were also seen during the initial outbreak of Covid-19 in 2020 before buying eventually returned.

“We believe they are more likely to be temporary rather than permanent, and global investors’ interest as well as net positions in A-shares have not shown concrete signs of reduction,” the US investment bank said in a report.

MSCI added China’s yuan-traded stocks, also known as A shares, to its emerging-market gauge for the first time in 2018, after rejecting the request for three consecutive years. China’s onshore stocks now account for about 4 per cent of the MSCI Emerging Markets Index.

Still, the index compiler said in 2020 that it would not consider further boosting the weighting of A shares in its global indices, unless Chinese regulators resolve issues such as lack of derivative products available for overseas investors, short settlement periods and unsynchronised closure of trading in Hong Kong and the mainland.

UBS Group predicts that the weighting of A shares in MSCI’s global gauges will eventually rise to 20 per cent.

Author: Zhang Shidong, SCMP

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