China shares get MSCI nod in landmark moment for Beijing

SINGAPORE — China’s domestic equities will join MSCI’s benchmark indices after three failed attempts, a step in the nation’s integration with the global financial system.

The New York-based index compiler announced on Tuesday that it will include 222 China domestically-traded “A” shares in the MSCI Emerging Markets Index from next year. This would bring the total number of constituents in the MSCI China Index to 423 from the current 152.

While MSCI’s announcement was a landmark step in China’s integration with the global financial system, it will initially have a small effect on the amount of foreign money entering the nation’s US$6.9 trillion (S$9.6 trillion) stock market, said analysts. Domestic shares will comprise just 0.7 per cent of MSCI’s global emerging-markets gauge as inclusion begins in two steps next year: The first in May and the second in August.

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. The Shanghai Composite Index swung between gains and losses for much of the trading session yesterday, before a late-afternoon rally lifted it to a 0.5 per cent advance.

“MSCI’s decision to include ‘A’ shares in its Emerging Markets Index will benefit Singapore-based fund managers and institutional investors,” said Mr Sunil Hiranandani, director and regional head of Belt Road Initiative, HSBC Singapore. Despite the reduced weighting, the move will spur demand in the long term for Chinese equities globally and “widen the investment universe” for index-linked fund managers.

“This is yet another reminder that China’s commitment to opening up its capital markets will create opportunities for investors, allowing them access to China’s large cap companies in high growth sectors such as consumer, technology and industrials,” he added.

The Singapore Exchange (SGX) reported that “more than half of the stocks” listed on the benchmark Straits Times Index (STI) are reporting revenues to China.

A total of 17 STI stocks geographically segmented their revenues to China or Greater China (China, Hong Kong, Macau and Taiwan) in their most recent annual reports. According to the SGX, of the 30 stocks that make up the STI, 10 stocks geographically segmented revenue or net revenue to China in their most recent financial year. These exposures ranged from Ascendas Reit, which reported 1 per cent of its revenues to China, to Global Logistic Properties which reported 67 per cent of its revenue to China.

DBS Group reported 7 per cent of its revenues last year to Greater China excluding Hong Kong, while Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) report revenues to specific countries such as Singapore and Malaysia in addition to Greater China. Last year, OCBC and UOB reported 15 per cent and 8 per cent of their revenue to Greater China, respectively.

CapitaLand reported 51 per cent of its revenue last year to China and Hong Kong, while Yangzijiang Shipbuilding Holdings reported 32 per cent of its revenue to China and Taiwan.

The China Securities Regulatory Commission said on Wednesday that it welcomed MSCI’s decision and will improve its rules to meet the needs of foreign investors. AGENCIES