MSCI cuts dozens of Chinese stocks from its global benchmark indices, raises India’s weightage to record high
- MSCI added five Indian stocks to its Global Standard index with no deletions in its February review; it deleted 66 Chinese stocks and added five new members
- The exclusion of Chinese stocks emerges as China’s weighting in global portfolios slumps amid worries about its struggling property sector
Index provider MSCI is cutting dozens of Chinese companies from its global benchmarks following its February review, after many stocks tumbled as China’s market erased trillions of dollars in value. At the same time, it raised India’s weightage in its Global Standard (Emerging Markets) index to a historic high of 18.2 per cent.
MSCI added five Indian stocks to its Global Standard index with no deletions. In contrast, the index provider deleted 66 Chinese stocks in the highest tally of exclusions in at least two years, while adding five new members.
India’s weightage in the index has nearly doubled since November 2020 and it has the second-highest weightage in the MSCI Global Standard index, after China.
The climb can be attributed to India’s standardised foreign ownership limit in 2020, the sustained rally in domestic equities and relative underperformance of other emerging markets, especially China, Nuvama Alternative & Quantitative Research said in a note.
With consistent flow from domestic institutional investors and steady foreign portfolio investors’ participation, there is potential for India to surpass a 20 per cent weight in the MSCI Global Standard index by early 2024 itself, Nuvama added.
Chinese stocks to be cut include property developers Gemdale and Greentown China, as well as China Southern Airlines and Ping An Healthcare and Technology. All the changes, effective as of the close on February 29, will also apply to the MSCI All Country World Index.
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State-owned lenders Punjab National Bank and Union Bank of India were added to the large-cap index, while Bharat Heavy Electricals and NMDC were included into the mid-cap index. GMR Airports Infrastructure was moved to the mid-cap index from small-cap.
The removal of Chinese stocks come as China’s weighting in global portfolios slumps amid worries about its struggling property sector and weak consumption, and as alternatives such as India become more prominent. In a sign of the deep pessimism about the China and Hong Kong stock markets, equity rallies spurred by a slew of policy support measures last week faded within a few sessions ahead of the Lunar New Year break.
“It highlights the issue of negative flows for Chinese stocks as investors reduce exposure to the country, in large part due to recent weak fundamentals, but also fears of ongoing financial instability, regulatory uncertainty and, most of all, country risk,” said Kyle Rodda, senior market analyst at Capital. com.
“Some investors may also be forced to liquidate because of losses already incurred or because certain companies no longer fall within investment mandates,” he added.
Three stocks will be deleted from the Hong Kong index as well: Budweiser Brewing, New World Development and Xinyi Glass Holdings.
On the other hand, India could witness up to US$1.2 billion passive foreign inflows to the standard and small-cap indexes after the February review, Nuvama said in the report.
Five components will be added to the MSCI China Index, including electrical-appliance maker Midea Group and skin-treatment company Giant Biogene Holding.
Still, the high number of deletions could weigh as Hong Kong resumes trading on Wednesday. MSCI takes a number of factors into account for including stocks in its standard indices including market capitalisation, free float and extreme price increases.
“The deletion list of Chinese companies, spanning across a wide range of sectors from technology, property and retail to healthcare, solidifies the perception of systemic-based concerns over the world’s second-largest economy,” said Hebe Chen, market analyst at IG Markets.
