MSCI to make big call on world’s worst stock market

HONG KONG - Index-tracking global investors are about to find out whether they will be compelled to start buying shares in the world’s worst-performing stock market.

Leading stock index compiler MSCI will announce on Wednesday (June 15) whether China’s domestic equities will be added to its global benchmark gauges - a move that would initially spur inflows of as much as US$30 billion (S$40.7 billion), according to financial services giant HSBC Holdings. While inclusion would offer investors greater access to companies in the world’s second-largest economy, the Shanghai Composite Index has tumbled 44.1 per cent in the past 12 months, including a 19.7 per cent loss this year.

MSCI has been considering whether to include mainland-traded Chinese stocks since 2013 and has twice put off approval, citing concerns about market accessibility among the reasons. Issues have included quotas for foreign investors, the need for improvements in liquidity and further clarification of share-ownership rules.

While Chinese authorities have taken steps to answer MSCI’s questions, a 3.2 per cent sell-off in the Shanghai Composite Index on Monday suggests mainland traders doubt officials have done enough. Yesterday, the benchmark clawed back just 0.3 per cent. At this time last year, Chinese investors were much more exuberant and more leveraged. The benchmark stock gauge traded at a seven-year high on the eve of MSCI’s decision amid record turnover and margin debt.

The Shanghai Composite Index’s loss in the past year is the biggest among 93 benchmark gauges tracked by Bloomberg, and compared with the 7.7 per cent decline in the MSCI All-Country World Index. - BLOOMBERG