Chinese shares rebound ahead of MSCI inclusion

Chinese shares rebound ahead of MSCI inclusion

Chinese shares rebound ahead of MSCI inclusion

An investor checks stock information on a mobile phone at a brokerage house in Shanghai, China, March 7, 2016.

Not all of the 3,000-plus companies trading in Shanghai and Shenzhen are eligible for inclusion in the MSCI Emerging Markets Index, indicating KBA holdings meet stringent global institutional standards.

"I expect foreign inflows will pick up toward the end of trading day as passive funds are obliged to buy China stocks ahead of the inclusion", said Yang Hai, strategist at Kaiyuan Securities.

Kweichow Moutai, China's leading liquor brand, climbed 3.48 percent to 751.13 yuan.

The step is expected to lead to billions of dollars of new foreign investment in the Chinese shares by global funds that match their portfolios with MSCI indices. AGF Investments Inc. now owns 1,834,482 shares of the exchange traded fund's stock worth $55,842,000 after purchasing an additional 1,382,868 shares during the last quarter.

Some analysts estimate about $20 billion will initially flow into Chinese stocks, rising to $300 billion if there is full inclusion, as many expect. Some investors, however, predict much smaller inflows in the short term. The second phase of the inclusion will take place on September 3, raising the factor to 5%.

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Like ZTE, China Railway Group Ltd (中國中鐵), whose H-shares are in the MSCI China Index, has been removed from the list, along with Beijing Orient Landscape & Environment Co (東方園林), China Hainan Rubber Industry Group Co (海南橡膠) and Shanxi Taigang Stainless Steel Co (太原鋼鐵).

In 2013, MSCI put A-shares on a review list but did not include them in indexes, citing issues including capital mobility restrictions and uncertainties around taxes.

However, if China continues to liberalize its markets and MSCI greenlights further A-shares inclusion for its indices, China's weighting in the Emerging Markets Index could jump significantly.

SG Americas Securities LLC bought a new position in shares of Ishares Msci South Africa Index Fund (NYSEARCA:EZA) during the 1st quarter, according to the company in its most recent Form 13F filing with the Securities and Exchange Commission.

He underlined the importance of the Stock Connect Initiative in MSCI's decision-making, calling it the "enabler" to the final decision as it treats all global investors equally, as opposed to other existing investment channels that give respective investors different quotas, such as the QFII (Qualified Foreign Institutional Investor) and RQFII. The State Administration of Foreign Exchange has granted $99.5 billion worth of quotas for QFII investment.

Another scheme, RMB QFII, allows the use of offshore yuan to invest in Chinese shares. The Northbound daily buy and sell turnover is the highest since Stock Connect's launch in 2014.

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