As MSCI adjusts China indices to reflect growing investor interest in undervalued SOEs, analysts say non-state-owned firms worth a look too
- 28 mainland-listed companies included and nine removed from onshore index, while 23 additions and 17 deletions made to MSCI China All Shares Index
- Two of the largest additions to both gauges are not state controlled
As part of its semi-annual global index review, MSCI said 28 mainland China-listed companies will be included in the MSCI China A Onshore Index, while nine component stocks will be removed. The gauge tracks the largest companies listed on the Shanghai and Shenzhen exchanges based on market value.
Another 23 additions and 17 deletions will be made to the MSCI China All Shares Index, the benchmark that covers Chinese companies mainly trading in Hong Kong and the United States. Changes to this gauge’s constituents are expected to draw the most attention from investors, as the gauge enjoys representation on the MSCI Emerging Markets Index, which is widely tracked by global fund managers, particularly those running passive funds.
All changes will be implemented as of closing on May 31, MSCI said.
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“The adjustments [in the key gauges] come after investors have shown a keen interest in state-owned companies because of a belief that some of these stocks have been largely undervalued,” said Ivan Li, a fund manager at Loyal Wealth Management in Shanghai. “[However,] the newly added components are [also] worth looking at, because they will help reflect the market trend.”
For instance, two of the largest additions to both the benchmarks – Beijing-based computer components maker Hygon Information and renewable resources development services provider Xinjiang New Energy – are, in fact, not owned by governments in China or companies controlled by governments.
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Listed SOEs are among the few sectors that have held onto gains on the onshore market over the past few weeks.
Traders have seized upon a call by China’s securities regulator to establish a fresh methodology for valuing SOE stocks, most of which trade close to their book values. The trade has sent stock prices of banks and telecoms operators – sectors dominated by SOEs – skyrocketing.
“SOEs are normally the earliest beneficiaries of government sweeteners and that’s why they are being actively chased,” said Ding Haifeng, a consultant at financial consultancy Integrity in Shanghai. “But some private firms can do well even without strong government support.”
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Sealand Securities, a midsized brokerage based in China’s southern Guangxi province, and Shanghai Medicilon, a pharmaceutical research and development firm, are among the constituents deleted from the two MSCI gauges.
MSCI added China’s yuan-traded stocks, also known as A shares, to its emerging-markets gauge for the first time in 2018 after rejecting the request for three years. China’s onshore stocks now account for about 4 per cent of the MSCI Emerging Markets Index.
