China News Service, Beijing, February 18 (Reporter Chen Kangliang) MSCI recently announced the results of its quarterly index review and adjusted the index constituent stocks. The MSCI Emerging Markets Index has newly added 4 Chinese A-shares, including Midea Group, China Merchants Highway, MGI, and Samsung Healthcare, and removed 48 A-shares, including Sunlord Electronics, Siruipu, Honglu Steel Structure, and Pluto Pharmaceuticals. The results of this adjustment will take effect after the market closes on February 29, 2024.
In this regard, Liu Gang, chief overseas strategist of the Research Department of CICC, said that MSCI will make routine adjustments to all its indices four times a year, including semi-annual reviews with larger adjustments in May and November, as well as in February and August. Quarterly review with smaller monthly range. Each adjustment is mainly based on objective quantitative indicators, such as market value and liquidity. As a regular quarterly review, MSCI's adjustment has a limited overall impact on A-shares, and capital outflows are controllable.
Liu Gang explained that the total weight of the 48 A-share companies removed this time in the MSCI Emerging Markets Index is only 0.097%. Based on the scale of passive funds tracking the index, the potential scale of passive fund outflows can be calculated to be approximately 330 million yuan ( RMB, the same below), is about 0.04% of the average daily trading volume of A-shares in 2023. Compared with the average daily trading volume of the A-share market, it is very limited. As far as the changes in passive capital flows caused by the adjustment are concerned, the impact is quite limited.
Liu Gang further pointed out that based on historical rules, MSCI's regular index adjustments have a controllable impact on the overall market. By measuring the performance of A-shares on one day, three days and one week after a total of 17 regular adjustments to the MSCI index since 2020, no deterministic rise and fall patterns were found. In addition, it is worth mentioning that in addition to the inclusion and exclusion of constituent stocks, this MSCI index adjustment also involves changes in the weights of existing companies in the index. The weights of some leading Chinese industry companies have increased to varying degrees, such as China Construction Bank etc., capital inflows from related heavyweight stocks may have a greater impact on the index and the market.
Wu Xinkun, chief strategy analyst at Haitong Securities, also held similar opinions. Wu Xinkun said that this quarterly adjustment is more of a technical adjustment based on the market value inclusion standards. The total market value of the 48 A-shares that were removed is in the range of 10 billion to 24 billion yuan, because it is lower than the relevant market value and circulating market value. Standard and be called out.
“The impact of this adjustment on the market is mainly concentrated on capital, mainly foreign capital. This is because passive funds that follow the MSCI Global Index may allocate more funds to newly included stocks and passively sell the stocks that have been transferred out. "Wu Xinkun said, but based on rough estimates, since the total market value of the stocks being removed accounts for a small proportion of the emerging market index, and this adjustment does not involve changing the 20% inclusion factor of A shares in the emerging market index, it is expected that the overall impact may be More limited.
Wu Xinkun further said that the positive factors in A-share capital and policy have been accumulating recently, and the market may usher in the first wave of rebound from the bottom. From a policy perspective, the first quarter is often a time window for major meetings in China. Active growth stabilization policies will continue to be effective, and China's economic fundamentals may gradually recover. In addition, the Federal Reserve is expected to start an interest rate cut cycle in 2024. Benefiting from the general trend of overseas liquidity becoming looser, the RMB exchange rate may gradually stabilize in the future, and foreign capital is expected to return to A-shares.
Gu Shengxi, chief analyst of CITIC Securities Index Research, said that Chinese stocks occupy an important position in emerging markets. Since February 2024, the total net inflow of northbound funds into A-shares has exceeded 21 billion yuan. The current valuation of A-shares is at a historical low, which is a good allocation opportunity for foreign capital. (over)