MSCI move lifts
Stock Connect
turnover
International investors continued to plough
into Chinese equities following MSCI’s
latest increase to the weighting of A-shares
in its emerging markets index, shrugging
off concerns about a Sino-US trade war and
poor corporate governance among Chinese
listed companies.
According to data from Hong Kong
Exchanges and Clearing, northbound
daily turnover through its Stock Connect
schemes with bourses in Shanghai and
Shenzhen rose by almost three-quarters
on August 31, the day MSCI increased the
weighting of A-shares in the index to 5%
of their market capitalisation. The index
provider began phasing in A-shares at a
factor of 2.5% in June.
Northbound daily turnover for both
Connect schemes touched Rmb31.72bn
(US$4.64bn) during that session, before
falling back last Monday to Rmb22.02bn.
Overall turnover has been rising steadily
since the beginning of the year as more
international investors are increasing their
exposure to China, and not just passive
investors that benchmark themselves
against the index.
“Passive investors, tracking the
benchmark emerging market index had
already been required to prepare, but active
investors have also been prompted to put
systems in place to meet the benchmark
REQUIREMENTSûANDûALSOûTOûBENElTûFROMû
opportunities to earn alpha returns,” said
Stephane Loiseau, head of cash equities and
GLOBALûEXECUTIONûSERVICESûFORû!SIAû0ACIlCûATû
Societe Generale.“Evidence of this renewed interest is
NOTûHARDûTOûlNDû4HEREûWEREûABOUTû û
special segregated accounts before the
IMPLEMENTATIONûOFûTHEûlRSTûINCLUSIONûBYû
MSCI in June this year. By the end of August,
the number had soared to more than 5,800,
just before the second inclusion.”GRADUAL PROCESS
The heightened trading activity is a
comfort to MSCI, which had been accused
of dithering over the inclusion of A-shares
in its benchmark EM index in the past.
4HEû53ûINDEXûPROVIDERûlNALLYûRELENTEDûLASTû
June after at least four years of talks with
Chinese regulators, although it opted for a
low weighting to start with.
It has emphasised since then that it
will continue to raise the weighting for
A-shares. Baer Pettit, MSCI’s president, said
DURINGûAûMEDIAûBRIElNGûINû(ONGû+ONGûINû
May that he expected Chinese stocks to
eventually have a weighting in the index
based on 100% of their market value. Hesaid this might occur more quickly than
with Taiwan and South Korea, which took
lVEûANDûSIXûYEARSûRESPECTIVELYûFROMûWHENû
THEYûWEREûlRSTûADMITTED
Several market observers have previously
expressed concerns about the inclusion of
A-shares in the index, however, citing weak
corporate governance standards, regular
SHAREûSUSPENSIONSûANDûTHEûDIFlCULTIESû
faced by investors in repatriating funds.
Observers also queried whether appetite
among international investors for A-shares
was set to wane because of rising trade
tension between China and the US and a
depreciating renminbi.
According to research from the Asian
Corporate Governance Association, 48% of
foreign investors surveyed said that MSCI
was wrong to add A-shares to its index.
Several large investors disagreed with this
conclusion, however, and said more foreign
investors were switching their focus to
China.
“I don’t think the inclusion has been too
hasty,” said one portfolio manager at a large
53ûASSETûMANAGEMENTûlRMûh4HEûFACTûOFûTHEû
matter is we have been talking about this for
years. The question is whether investors are
ready to invest in A-shares themselves and
that means having boots on the ground.”
“We’ve been investing in China for a
NUMBERûOFûYEARSûTHROUGHû1&))û1UALIlEDû
Foreign Institutional Investor scheme) so
MSCI inclusion doesn’t really affect us.
But after MSCI inclusion, I think some of
the smaller investors are starting to pay
attention more closely to China now. The
growth potential is so high compared with
other markets.”
MSCI also added 10 more A-share stocks
to its EM index on August 31, taking the
total up to 236. Chinese A-shares currently
represent 0.75% of the overall index.
THOMAS BLOTTPeople
&Markets
Who’s moving where...
CREDIT SUISSE has
hired Vicky He as
head of syndicate
for North Asia in its
Asia Pacific financing
group, according to
an internal memo
released last Monday.
She started work
last Monday as
director and reports
to Sergio Morita,
head of syndication
and distribution inthe APAC financing
group.
Based in Hong Kong,
He will be responsible
for syndication
and distribution
of financings from
Greater China, Korea
and Japan.
Prior to joining Credit
Suisse, He was with
Standard Chartered’s
loan syndication team
in Hong Kong. Benny Low has
joined DBS BANK’s loan
syndications team in
Singapore.
He started in mid-
July as vice president
with responsibility for
loans distribution for
South and South-East
Asia.
He reports to Mildred
Chua, head of
syndicated finance
for Asia.Before joining DBS,
Low spent six years
as a relationship
manager at Maybank
in Singapore. Rina Ooi has
retired from DBS BANK
after a 38-year career
with Singapore’s
largest bank. Her last
day was on August 31.
Ooi was head of
Singapore dollar
bond syndicate in her
last position in DBS.
She is succeeded by
Priscillia Lim, who will
report to Clifford Lee,
head of fixed income. CARLYLE GROUP has
hired Vikram Nirula as
managing director in
Mumbai.
Nirula joins Carlyle
after 18 years with
local Indian private
equity firm, True North
Managers, which he
helped found.
Prior to founding True
North, he worked at
Arthur Andersen.NORTHBOUND TURNOVER (RMB BILLIONS)
THROUGH STOCK CONNECTSource: Hong Kong Exchanges and Clearing,
IFR calculations0100200300400500Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18
Shanghai Shenzhen