— This is the script of CNBC's news report for China's CCTV on May 15, 2018, Tuesday.
The reason why this list is important is that the stocks of these 234 A listed companies that on the finally confirmed list will be incorporated into MSCI index on 1, June of this year. However, we know that MSCI index is related directly to more than 12 trillion dollars investment funds of overseas institutions and that means these selected A listed companies will be on the buying list of some international pension funds, endowment funds, ETFs and other large-scale active funds and passive funds. Let's have a look of some final changes before the A-shares are included in MSCI.
MSCI added 23 constituent stocks to the MSCI China A-Shares onshore index, and MSCI eliminated 88 constituent stocks. Among them, the newly incorporated stocks are mainly the sectors that have performed well since the beginning of the year, such as healthcare and consumer products, and the reason for that is the risen in stocks price causing them upgrade from mid-cap stocks to large-cap stocks.
The three A shares with the highest market value are Hengli Petrochemical, Hailan House and Shenyang Aircraft Industry Group. The companies that were removed were mainly the sectors with poor performance such as cyclical products and brokers, including China Coal Energy, Zhongke Jincai, and Haima Automobile, etc.
Among the retained companies, Kweichow Moutai, Ping an, China Merchants Bank and other hot stocks are with most concerned; these stocks will be the stocks with large weight in MSCI index. However, the three A shares of Industrial and Commercial Bank of China, China Construction Bank and China National Petroleum Corporation have the largest market value among the MSCI Emerging Market Index.
After the final adjustment, these companies will be formally incorporated into several indexes that under MSCI on June, 1. And this is predicted to boost A-shares. From the perspective of the ratio of inclusion, this year is expected to include a weighting percentage of 5% of the MSCI index and that will be completed in two steps, with 2.5% on June 1st, and the second step will be conducted on September 3. The analysis predicts that the first partial inclusion of 2.5% may bring about $10.6 billion of overseas funds for A-shares, showing that the MSCI Index has benefited the A-share companies in China. However, such positives actually started before the index was officially launched.
Let's take a look at the overseas funds flowing into China's stock market through forms such as Shanghai Hang Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. As we can see, the scale of inflowing funds has rebounded rapidly since 2018, especially in April, the scale that overseas investors buy inland stocks through" Stock Connect" reached 40.49 billion yuan, hitting a new history peak and showing the increasingly attractive of A-share market to foreign countries.
For overseas investors, however, they are unfamiliar with some of the more than 200 China companies that are newly added on their buying list. And according to the data from US Consultant Investment Technology Group, of the more than 200 investment institutions surveyed, only 70 have ever traded stocks listed in China. Therefore, when these companies will be formally incorporated into the MSCI index in June and their weight gets increased, the overseas institution may further release funds. This, in turn, will attract more active foreign investors to enter the market. I also interviewed GAO Ting, the analysts from UBS security, GAO Ting thinks that the sectors of non-essential consumer goods, consumer necessities, and healthcare will be continuously favored by foreign investors. We will keep an eye on this issue.