MSCI cuts dozens of companies from its China benchmark amid stock market rout

Feb 14, 2024

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Hong Kong CNN  — 

Global stock index compiler MSCI is deleting dozens of companies from its benchmark China Index, which could further exacerbate fund outflows from Chinese equities after a massive stock market rout.

The index provider announced this week that it would drop 66 securities from the MSCI China Index, one of its flagship China indexes, as part of the company’s latest quarterly review. Five new securities will be added to the index.

MSCI’s equity indexes are tracked by institutional investors worldwide for asset allocation and investment analysis. More than 1,370 global exchange-traded funds are linked to its various indexes, according to the company.

The MSCI China Index is the compiler’s key index tracking the Chinese stock market, covering about 85% of the total market capitalization of Chinese companies listed globally.

The decision by MSCI is likely to affect the weighting of Chinese stocks in global portfolios and could cause further fund outflows, at a time when investor confidence was already low.

The changes, effective after the stock market closes on February 29, will reduce the total number of the index’s constituents to 704.

This is an unusual move by the compiler, which for years had been largely increasing the number of stocks in the MSCI China Index. In its previous four quarterly reviews of that benchmark, it deleted a total of 57 stocks, and added 113.

On Monday, MSCI also announced changes to its other China-related indexes, including deleting dozens of stocks from MSCI China A Onshore indexes and MSCI China All Shares indexes.

China’s stock market has been in a protracted slump since recent peaks in 2021, with more than $6 trillion in market value having been wiped out from the Shanghai, Shenzhen and Hong Kong markets.

Investors are concerned about a myriad of challenges facing the world’s second largest economy, including but not limited to a prolonged property downturn, high youth unemployment, deflation and a rapidly falling birthrate.

An investor looks at screens showing stock market movements at a securities company in Fuyang in China's eastern Anhui province on January 17, 2024.

According to MSCI, among the 66 stocks to be removed include Greentown China Holdings, a Hangzhou-based property developer, and Gemdale Corp, a Shenzhen-based developer.

Other deletions include social media platform Weibo, food and beverage producer Uni-President China, state-owned airliner China Southern Airlines, online lending platform Lufax Holdings and gene giant BGI Genomics.

The five additions include electrical appliance manufacturer Midea Group and gene sequencing equipment maker MGI Tech.

Beijing has been scrambling to draw a line under the three-year market rout, rolling out a raft of supportive measures in the past few months.

Recently, it has pumped money into stocks via the country’s sovereign wealth fund and even replaced the head of its securities regulator in an apparent attempt to appease public anger.

The redoubled attempts appeared to have bought Beijing some more time, as mainland Chinese markets had a short rebound last week before they closed on Friday for the Lunar New Year holiday.

But they don’t address the underlying challenges the economy faces.

“While Chinese stocks’ relative valuations are at an all-time low, prospects for the asset class are not particularly bright as investors doubt the willingness of Beijing to deliver large-scale scale support to revive the stock market,” said Luca Paolini, chief strategist for Geneva-based Pictet Asset Management, in a research report last week.

“What is more, [a] turnaround in the property market, which is key for an improvement in sentiment, is not in sight, ” he said.

Hong Kong’s stock market reopened on Wednesday after a long holiday weekend, with the benchmark Hang Seng Index up 0.9%. Mainland China’s markets remain shut and will resume trading on February 19.

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