China, Hong Kong shares shrug off MSCI A-share snub to close higher

Shanghai Composite Index jumps 1.58 per cent to 2,887.21 while CSI 300 adds 1.31 per cent to 3,116.37

PUBLISHED : Wednesday, 15 June, 2016, 9:22am
UPDATED : Wednesday, 15 June, 2016, 7:25pm

Mainland Chinese stocks reversed initial losses to close higher on Wednesday, shrugging off the negative impact of index compiler MSCI’s decision to forgo inclusion of A shares in its benchmark emerging market index.

The Shanghai Composite Index jumped 1.58 per cent to 2,887.21 while the CSI 300, which tracks large companies listed in Shanghai and Shenzhen, rose 1.31 per cent to 3,116.37.

Among sectors in Shanghai, manufacturers were among the biggest gainers, jumping 3.40 per cent on average.

Elsewhere in China, the Shenzhen Composite Index rallied 3.12 per cent to 1,889.87 while the Nasdaq-style ChiNext jumped 3.42 per cent to 2,128.80.

Castor Pang Wai-sun, head of research for Core Pacific Yamaichi, said he believes the rally in mainland stocks was primarily driven by support from the so-called “national team” because the central government did not want to see the market stumble again after MSCI’s decision on Wednesday.

Pang said he doesn’t see any fundamental support for a continuing rise in mainland shares. “I think China has gotten into quite a predicament at the moment. The economic growth is slowing down further and capital outflows continue,” he added.

Victor Au, chief operating officer at Delta Asia Financial Group, said the MSCI’s decision to not include A shares in its index was anticipated by the market. “Markets digested the negative news in advance. Massive sell-offs in Hong Kong and mainland stocks started early this week,” he added.

Au said the Chinese government may now focus more on stabilising China’s economic growth and the Chinese yuan. Officials, along with investors, seemed to accept the idea that A shares will be welcomed into the MSCI index sooner or later, he said.

Global investors are still closely following every progressive move with the intention of stepping up investments in China
John Sin, BNY Mellon

“Although this delay may be unsurprising to many, an initial inclusion weighting of 5 per cent would have been unlikely to send shockwaves through the international investment community,” said John Sin, head of asset servicing, Greater China for BNY Mellon. “Be it through the various Stock Connect routes, RQFII initiatives ... or the indices, global investors are still closely following every progressive move with the intention of stepping up investments in China,” he said.

Hong Kong stocks ended higher on Wednesday, with the Hang Seng index up 0.39 per cent to close at 20,467.52. The Hang Seng China Enterprises Index increased 0.31 per cent or 26.5 points to 8,609.59.

The market turnover of Hong Kong stocks was HK$58.55 billion, higher than Tuesday’s HK$53.21 billion.

Among blue chips, China’s internet giant Tencent led the gains, jumping 2.79 per cent to HK$173.0. China Construction Bank added 1.38 per cent to HK$5.15. However, Hong Kong Exchanges and Clearing narrowed its decline to close 0.98 per cent down at HK$181.5, while China Vanke dropped 1.24 per cent to HK$17.5.

Pang expects higher volatility among Hong Kong stocks in June because of possible risks from the UK exiting the European Union, which will put downside pressure on the city’s equities market. In addition, Chinese data to be announced this month is expected to be weak, he added.