Global indices still warm on China

Added 10th September 2015

Some see the economic outlook for China as grim, supported by manufacturing data, but global index providers hold a more positive view, said according to Jackie Choy, ETF strategist at Morningstar.

Global indices still warm on China

Major index providers, such as MSCI, FTSE Russell and S&P, are actively looking at ways to include A-shares into underlying index-tracking ETFs and mutual funds – with MSCI leading the pack, said Choy.

Earlier in January, the MSCI announced that effective November this year, it will allow shares of companies trading outside their home markets to enter their native country indexes. Most notable is MSCI’s decision to include Alibaba and Baidu into the MSCI China Index.

“Active funds can take the opportunity to buy into these stocks,” Choy told Fund Selector Asia.

Nitin Dialdas, chief investment officer of Mandarin Capital Partners, said MSCI’s move sends all the right signals to industry watchers.

“Alibaba and Baidu are large Chinese companies, so I believe it is correct for MSCI to include them in the China index. The addition of these two companies gives us a better reflection of the Chinese economy as a whole and I will expect other major Chinese companies listed in the US, such as and Ctrip, to be added in the future,” Dialdas said.

“[Although] the decision may change my view on investing in the MSCI China index, it does not change my general decision-making, as we have always included Chinese companies listed outside of China,” Dialdas added.

Choy noted that the free float-adjusted market capitalisation of China A-shares is $1.4trn. This, combined with the $1.0 trn market capitalisation of Hong Kong-listed Chinese firms, brings China’s total market capitalisation to $2.4 trn.

MSCI released a roadmap in June stating that it could potentially include 17 overseas listed stocks between November 2015 and May 2016. At present, the MSCI China Index is saturated with large state-owned Chinese companies, particularly in the financial, energy and telecommunication sectors.

FTSE Russell announced earlier in May that it is starting its transition to include China A-shares in its global benchmarks. It aims to make China-A shares eligible for inclusion in its global indexes within two-to-three years.

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