Big investors dump stocks axed from MSCI China Index
Nick Westra and Wong Ka-chun
Several major Hong Kong-listed mainland stocks fell more than 10 per cent yesterday after fund managers made a flurry of last-minute trades to reflect a rebalancing in the MSCI China Index.
China Southern Airlines and China Eastern Airlines Corp, two stocks that have been dropped from the benchmark, fell 12.63 and 10.96 per cent respectively, with most of the losses coming in the final 10 minutes of trading during the auction period.
Guangzhou Investment shed 11.11 per cent, Citic Resources Holdings slid 13.73 per cent while Hopson Development Holdings lost 10.14 per cent. All three stocks will be deleted from the index.
'Tracker funds have to match up the switches,' said Kenny Tang Sing-hing, an executive director of Redford Asset Management. 'And so they always push up or pull down share prices during the closing auction session due to the abnormal sale turnover.'
The MSCI, an equity index compiler, announced in its semi-annual review earlier this month that six stocks would be added to its mainland benchmark and nine would be deleted.
The changes will be effective today when trading begins.
Fund managers linking their portfolios to the benchmark usually reallocate their positions after the market close before the effective day so that they can most accurately track the performance of the benchmark.
Since most funds would only make the changes during the auction period, share prices could swing widely because of thin overall trading volume when the transactions are carried out.
For example, it would take more than two days of average turnover for a tracker fund to sell down its stake in China Eastern, but market observers said most funds did that all at once during yesterday's auction period.
Meanwhile, the Hang Seng Index yesterday rose the most in two weeks, tracking Monday's sharp rallies in the United States and Europe as investors cheered news of a stunning bailout for global lender Citigroup.
The blue-chip index rose 420.66 points or 3.38 per cent to close at 12,878.6, paced by gains in resources stocks following a surge in crude oil prices.
'Some of the raw material prices also followed rising crude oil prices and that's why the resources stocks rebounded so quickly,' said Patrick Yiu Ho-yin, an associate director at CASH Asset Management.
CNOOC and PetroChina, the mainland's leading oil producers, opened sharply higher and finished up 6.59 and 4.9 per cent, respectively. Zijin Mining Group, the country's largest producer of gold, climbed 6.06 per cent and Aluminum Corp of China gained 4.26 per cent.
Crude prices on Monday jumped 9.15 per cent to US$54.50 a barrel in New York. But crude prices cooled yesterday in Asian trading and most resources stocks closed below their morning peaks, signalling that the rally may have run out of steam.
'The markets rose and fell just like they do every time,' said Larry Grace, an energy analyst at Kim Eng Securities. 'Nothing has really changed for energy firms, nothing except for the seasons and the days on the calendar.'