China’s insiders are busy selling stocks on the back of the buying frenzy brought by MSCI’s increase of A share weightings
- At 2.2 per cent of China’s US$6.4 trillion stock market, foreign investors don’t hold any sway in the world’s second-biggest market
- The majority of shares are still being controlled by insiders - founders, management and parent companies
Foreigners are finally warming to China.
It’s no surprise: In just two months, the country’s stock market has done a 180. Investors from abroad were net buyers of more than 120 billion yuan (US$18 billion) of shares this year through Hong Kong’s Stock Connect. In hindsight, MSCI’s decision to include mainland stocks in its benchmark indexes last May seems like a wise one.
Late Thursday in New York, MSCI said it will increase the weighting of A shares in its China indexes and related benchmarks by raising the so-called inclusion factor – the ratio of mainland stocks’ market cap that’s included in the index – to 20 per cent from 5 per cent. As a result, China’s stock market can expect another US$60 billion of buying, estimates Goldman Sachs.
This flood of foreign money is a bullish sign for Chinese stocks, enthusiasts say.
Index compiler MSCI plans to quadruple weighting of Chinese stocks in its global benchmarks
Not so fast. Take a look at who owns China’s US$6.4 trillion stock market. At 2.2 per cent, foreigners’ sway is tiny. And while local retail investors are blamed for the 2015 stock-market frenzy, they hold only 20 per cent. The majority of shares are still controlled by insiders: founders, management and parent holding companies.
As early as May 2017, China’s securities watchdog tightened regulation on stock sales by majority shareholders. The move was intended to protect retail investors and strengthen corporate governance.