Global investors snap up Chinese stocks on last trading day before MSCI inclusion
Foreign fund inflows into Chinese equities were accelerating on the final day before the country’s US$7.2 trillion stock market officially joins prominent global gauges.
Net buying of mainland-traded stocks via links with the Hong Kong stock exchange reached 6.63 billion yuan (US$1.04 billion) on Thursday, according to Bloomberg data. That more than doubled the average daily buying of 2.72 billion yuan in May.
Global managers of index-based funds would probably concentrate on the shares of the more than 200 Chinese big caps that will be incorporated into the MSCI Emerging Markets Index on the final trading day before the addition takes effective on June 1, according to Lynda Zhou, a fund manager at Fidelity International in Hong Kong.
“Index-based fund managers will probably buy the stocks on the final day to make sure that the constitution of their funds’ portfolios is as close to the underlying index as possible,” she said. “That may lead to some big movements in fund flows.”
About US$19 billion in funds are expected to flow to the mainland stock markets as a result of the MSCI inclusion, according to Fidelity.
Foreign interest now seems to outweigh negative factors recently rattling the market, including renewed concern about a trade war between the world’s two biggest economies and an array of corporate bond defaults.
The CSI 300 Index of large companies that almost overlaps the 200-plus stocks that will be included in MSCI’s global gauges, jumped 2.1 per cent on Thursday, with trading volumes 24 per cent above the five-day average. Inner Mongolia Yili Industrial Group, a major rival of Hong Kong-listed China Mengniu Dairy, was the biggest gainer on the gauge, rising by the 10 per cent daily cap. Focus Media Information Technology and online retailer Suning.com surged by at least 7 per cent.
Foreign buying of Chinese stocks remains the highlight story in May. The average daily purchase of 2.72 billion yuan was already the highest on a monthly basis since the stock link programmes started in 2014.