Index compiler MSCI’s inclusion of Chinese large caps boosts international investors’ net buying of A shares to record US$45b in 2018
- International investors bought 50 per cent more shares year on year in 2018, but mainlanders’ investment in Hong Kong stocks fell 75 per cent
- International investors prefer consumer facing companies, while mainlanders like financial firms
International investors’ net buying of A shares via the Hong Kong northbound stock connect schemes last year rose 50 per cent to a record US$44.7 billion after mainland listed companies were included in the MSCI indices, according to a BNP Paribas report on Thursday.
The northbound trading via the Shanghai and Shenzhen stock links also accounted for between 5 to 10 per cent of the daily A-share turnover in 2018, compared to just one per cent at the beginning of 2017.
The US-based equity index compiler MSCI last June included 235 Chinese large caps in its benchmarks for the first time, giving it a 0.71 per cent weighting in its gauges, including the MSCI Emerging Markets Index.
The weighting will rise to 2.8 per cent if the inclusion factor of large-cap securities is increased to 20 per cent. It will further go up to 3.36 per cent after mid-cap Chinese companies are included.
The French investment bank’s 2019 Asia equity and derivatives outlook forecasts that even if there is a 50 per cent participation from active funds the total inflow may exceed US$36 billion for the index rebalancing events to be conducted by MSCI, FTSE Russell and S&P Dow Jones this year.
Sally Wong, chief executive of Hong Kong Investment Funds Association, said that international fund houses had stepped up buying of Chinese stocks actively since the MSCI inclusion.
