Removing MSCI indicates a decline in trust in Chinese markets
When China’s markets reopen following the Lunar New Year holidays, MSCI’s decision to remove dozens of Chinese firms from several indices will have an impact and might reverse some of Beijing’s recent attempts to boost investor confidence in equities, according to analysts.
Following modifications made by the index compiler, the MSCI China Index witnessed a net loss of 61 names, leaving about 700 firms. According to Hebe Chen, a market analyst at IG Markets, the investment landscape in China “highlights a shifted frame of mind.” “A deeper confidence deficit in the removed companies, as well as reflects the gloomy outlook for the China stocks,” the speaker stated, are highlighted by the number of removals.
Additionally, the action will “largely offset” attempts to bolster confidence before to the Christmas break, and Chen noted that the Chinese market is still operating in the “shadows.”
Early on Wednesday, the Hong Kong market was affected by MSCI’s decision, which was made during a quarterly review on Monday and included the removal of numerous Chinese names from the MSCI China All Shares Index, the China A Index, the China A International Index, and the China-A Onshore Index.
The benchmark Hang Seng Index experienced a 1.8% decline before turning positive after the lunch break.
A few of the businesses that were removed are also listed in Hong Kong. These include Technology, Ping An Healthcare, and Greentown China, which saw losses of 0.9%, 3.1%, and 3.1%, respectively.
The modifications to MSCI presented “further downside risks in China’s stock markets,” especially for investors who “may be forced to liquidate,” according to a note from analysts at UOB Global Economics & Markets Research.
Funds that monitor the index will have to sell holdings as a result of the adjustments, which will probably put more pressure on the market.
The removals follow a protracted period of weakness in Chinese markets amid worries that the nation isn’t recuperating from the pandemic as rapidly as anticipated and that little action has been taken by authorities to support markets severely impacted by a real estate downturn and different sectors crackdowns. Over the course of the last 12 months, the MSCI China Index has decreased by more than 26% and 8.5% since the start of the year.
Prior to the holiday break, the securities regulator in China announced that it had counseled listed companies in the country to fully utilize “the toolbox” at their disposal to increase investor confidence and market stability. This includes repurchasing shares, increasing the stakes of significant shareholders, and regularly declaring dividends.
