MSCI China Index: 66 stocks withdrawn from benchmark due to stock market crash

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Hong Kong
CNN
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Global stock index creator MSCI has removed dozens of companies from its benchmark China index, potentially worsening the outflow of funds from Chinese stocks following the stock market crash.

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

MSCI stock indexes are tracked by institutional investors around the world for asset allocation and investment analysis. The company says more than 1,370 global exchange-traded funds are linked to its various indexes.

The MSCI China Index is the editor’s leading index tracking the Chinese stock market, covering approximately 85% of the market capitalization of listed Chinese companies worldwide.

MSCI’s decision is likely to impact the weighting of Chinese stocks in global portfolios and could trigger further outflows at a time when investor confidence is already low.

The change will take effect after the stock market closes on February 29, reducing the total number of constituents in the index to 704.

This is an unusual move by a compiler that has significantly increased the number of stocks in the MSCI China Index over the years. Over the past four quarterly reviews of the benchmark, a total of 57 stocks have been removed and 113 stocks have been added.

On Monday, MSCI also announced other China-related changes. This includes the removal of dozens of stocks from the MSCI China A Onshore Index and the MSCI China All-Share Index.

China’s stock market has been in a prolonged slump since its recent peak in 2021, with more than $6 trillion in market capitalization wiped from markets in Shanghai, Shenzhen and Hong Kong.

Investors are concerned about the myriad challenges facing the world’s second-largest economy, including but not limited to a prolonged real estate downturn, high youth unemployment, deflation, and a rapid birth rate.

Among the 66 stocks excluded are Hangzhou-based real estate developer Greentown China Holdings and Shenzhen-based developer Gemdale Corporation, MSCI said.

Other targets of deletion include social media platform Weibo, food and beverage maker China Unification President, national airline China Southern Airlines, online lending platform Lufax Holdings, and genetics giant BGI Genomics. included.

The five companies added include consumer electronics maker Midea Group and gene sequencing equipment maker MGI Tech.

The Chinese government has rolled out a number of support measures in recent months, as it scrambles to draw a line between three years of market weakness.

Recently, capital has been injected into stocks through the country’s sovereign wealth fund, and even Apparently to calm public anger, the head of the securities regulator was replaced.

The attempt to double down appears to have bought Beijing some more time, as mainland markets briefly rebounded last week before closing on Friday for the Lunar New Year holiday.

But they do not address the fundamental challenges facing the economy.

“Relative valuations for Chinese stocks are at an all-time low, but investors doubt the Chinese government’s willingness to provide significant support to revitalize the stock market,” said Luca Paolini, director of the department. “The outlook for this asset class is not very bright.” strategists at Geneva-based Pictet Asset Management said in a research note last week.

“moreover, [a] “We don’t see an improvement in the real estate market, which is the key to improving sentiment,” he said.

Hong Kong’s stock market reopened on Wednesday after a long holiday, with the benchmark Hang Seng index up 0.9%. Markets in mainland China remain closed and trading will resume on February 19th.