China stock market

Buying dries up in Shanghai after bourse says funds tracking MSCI indexes finish building up positions

About 70 per cent of the nearly 230 mainland-traded stocks that joined MSCI’s emerging markets and global indexes retreated after the Shanghai exchange said major index-based funds were done with stock purchases to track portfolio changes

PUBLISHED : Friday, 01 June, 2018, 5:23pm
UPDATED : Friday, 01 June, 2018, 10:51pm

China’s stocks resumed declines on Friday, with the Shanghai benchmark posting a loss for a seventh time in eight days, as investors shrugged off the inclusion of A shares into MSCI’s equity gauges and concerns about a global trade war resurfaced.

The Shanghai Composite Index dropped 0.7 per cent, or 20.34 points, to 3,075.14 at the close, delivering a 2.1 per cent decline for the week. The CSI 300 Index of large companies lost 0.8 per cent and the small-cap ChiNext gauge tumbled 2 per cent. Hong Kong’s Hang Seng Index closed slightly higher.

About 70 per cent of the roughly 230 mainland-traded stocks that were added on Friday for the first time to MSCI’s emerging markets and global indexes headed south. Buying dried up as the Shanghai Stock Exchange said on its official microblog that major passive funds tracking MSCI’s benchmarks had basically finished building up positions on the stocks. The Shanghai Composite had jumped 1.8 per cent on Thursday, buoyed by foreign buying that boosted purchases of mainland-traded A shares via the exchange links to the highest level in six weeks.

“Short-term impact is limited because capital inflows triggered by index inclusion have been estimated at between US$18.4 billion and US$19.4 billion,” said Bin Shi, head of China equities at UBS Asset Management in Hong Kong. “That’s not such a large amount when you consider the A-share market has an estimated free-float capitalisation of US$3.4 trillion.”

Fears that the trade tension between the US and its allies will escalate also weighed on the broader market. The European Union, Mexico and Canada immediately unveiled retaliatory measures after the Trump administration announced plans to impose tariffs on imports of steel and aluminium from those regions.

Net inflows into mainland equities through the stock connect schemes shrank to 2.28 billion yuan (US$355.6 million) on Friday from 6.63 billion yuan a day earlier, according to Bloomberg data.

Perfect World led the declines among the stocks that joined MSCI’s benchmarks on Friday. The operator of businesses from PC games to movie-making tumbled 9.9 per cent to 32.47 yuan, paring its gain to 12 per cent over the past four months. Guangzhou Baiyunshan Pharmaceutical Holdings slid 8.1 per cent to 40.64 yuan and China Shipbuilding Industry Group Power also declined 8.1 per cent to 21.47 yuan.

Cyclical stocks, included in the MSCI indexes, rose. First Capital Securities added 6.1 per cent to 7.13 yuan and Shaanxi Coal Industry gained 3.8 per cent to 8.36 yuan.

In Hong Kong, the Hang Seng Index rose 0.1 per cent, or 24.35 points, to 30,492.91. The Hang Seng China Enterprise Index, or the H-share gauge, added 0.4.

Samsonite International, the world’s biggest luggage maker, jumped 9.9 per cent to HK$29.55, as the stock resumed trading after being suspended for the past four days. The company replaced its chief executive officer Ramesh Tainwala after an activist investor accused him of lying about his academic background.

The stock had tumbled 22 per cent before the suspension, as short-seller Blue Orca Capital questioned Samsonite’s accounting practises and poor corporate governance.

Gaming stocks dropped after casino revenues rose at a slower-than-estimated pace in May. Sands China slid 4.2 per cent to HK$45 and Galaxy Entertainment Group shed 3.2 per cent to HK$66.85. Gaming revenues increased 12 per cent from a year earlier last month, trailing the median projection of a 17 per cent growth, according to Bloomberg estimates.