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SCMP Reporter

Institutional investors have welcomed the announcement by index provider Morgan Stanley Capital International that it has created two indices aimed at capturing fluctuations in Hong Kong, mainland and Taiwanese stocks.

Last week's unveiling of the MSCI Zhong Hua and the MSCI Golden Dragon indices brings for the first time a consistent single index number covering cross-border markets, according to MSCI.

It will also give consistent treatment to all stocks, depending on the level of their free float and their liquidity.

The MSCI Zhong Hua is an aggregate of the MSCI Hong Kong Index and the MSCI China Free Index.

The MSCI Golden Dragon will comprise the existing MSCI Hong Kong, the MSCI China Free and the MSCI Taiwan Index, which has recently been given a 65 per cent weighting in the MSCI index series.

'We have already got clients getting ready to use these indices for their funds,' said John Fildes, a director of MSCI.

'It is well into double figures for the number of clients in Hong Kong who are going to use these indices.' Fund managers said it was about time that a more consistent index, particularly for Hong Kong and mainland stocks, was available.

'We have never been very satisfied by China indices in the past,' said Adeline Ko, a fund manager at Lloyd George Management.

She said her emphasis on stock-picking meant that benchmarks were now used more in the background than as a specific tracking tool, but she acknowledged that such aggregate cross-border indices were useful.

'Because there are so many different categories [of mainland stocks], it is difficult to group them all into one.' Fund managers said there was often particular confusion because while B shares could easily be identified as mainland stocks, it was less clear with red chips and H shares as they were traded in Hong Kong.

The creation of the indices was also seen as especially useful because it suggested that the index providers were viewing mainland stocks as an increasingly mainstream opportunity in pan-Asian investment.

Global fund managers said they had tended to treat mainland investing with caution due to varying amounts of liquidity in many stocks and inconsistent flows of information.

However, the mainland's imminent entry into the World Trade Organisation and the increasing need for Beijing to attract foreign investment meant that mainland stocks had become more attractive.

'I think it is good [these indices have been launched] because it is giving China more recognition as a main market,' said Suzie Rippingall, a fund manager at Stewart Ivory.

'It is about market evolution.' Fund managers said that both funds were in strong demand by Greater China managers - who invest in Hong Kong, the mainland and Taiwan.

These managers needed to use cross-border indices to measure their own performance.

'I think there is definitely a demand from the Greater China managers,' said Henry Ho, a fund manager at Atlantis Investment Management.

'People investing in Greater China markets need this a lot.

'It gives them an internationally recognised benchmark.' 



Thumbs up for indices