MSCI, Morgan Stanley Capital International, is to eliminate a large number of Chinese shares from its indexes. This reflects the challenging economic outlook for China.
India has made strides to close the gap between China and the MSCI Global Standard Index. Seven stocks have been added to the India index, while HDFC Bank’s weight was increased. This signals an economic shift for emerging markets.
Institutional investors track MSCI equity indexes for asset allocation, investment analysis and other purposes.
China’s drop in MSCI Indexes
MSCI Inc. announced that it would remove 60 shares from the MSCI China Index in this month. The removal follows the deletion of 56 stocks from the MSCI China Index in May, and the 66 removed in February. This is the most significant number of stock removals for at least the past two years.
China represented 22.33 % of Emerging Markets at the end of July.
Changes will be made to MSCI All Country World Index after August 30. Air China Ltd. Sany Heavy Equipment International Holding Co. and Shanghai Fosun Pharmaceutical Group are among the stocks that will be removed.
These deletions highlight the grim outlook for China, the second largest economy in the world. Chinese stocks risk being replaced by peers like India and Taiwan as the dominant shares of emerging markets.
Marvin Chen is a Hong Kong-based strategist at Bloomberg Intelligence.
The elimination of these categories will allow EM investors to compete on an equal footing. China’s weighting may have been more equally distributed among other markets, such as India and Korea.
India ascends in MSCI Global Standard Index
MSCI, in contrast with the removal of China shares from its index, announced that seven new stocks were added to its India gauge. Dixon Technologies India Ltd. is a Samsung Electronics Co. supplier.
HDFC Bank Ltd.’s weight will gradually increase as Bandhan Bank Ltd. is removed.
MSCI released a press release stating that the following seven companies will be added to the MSCI Global Standard Index within the next couple of weeks: Rail Vikas Nigam Limited, Dixon Technologies, Vodafone Idea. Oil India. Zydus. Lifesciences. Prestige Estate Project. Oracle Financial Services Software.
This will make the stock more visible globally and encourage foreign investors to invest in them.
Share prices of Dixon Oil India and Oil India have risen by respectively 3% and 2.72 %.
The MSCI has announced it will keep HDFC Bank on its indexes and increase the “Foreign Inclusion Factor” for its stock, from 0.37 up to 0.56. This means that 56% of HDFC Bank’s shares are available for investment by foreigners in the MSCI.
Weightage for the Global Standard Index of the Bank will increase in two phases.
Abhilash Pagaia, Nuvama Wealth Manager Ltd.’s head of alternative quantitative and analytical analysis, says that HDFC Bank will benefit from the increase in weight, which is expected to bring in $1.8 Billion in Inflows within the next few months and $1.8 Billion more by November.
India’s growing weight could bring up to $3 Billion in new investments
India’s weight in the MSCI Global Standard Index (which tracks stocks from emerging markets) has reached a new record.
According to Nuvama, this shift is likely to attract inflows of about $3 billion into India’s equity markets. Nuvama estimates that this shift will attract about $3 billion in equity market investments into India.
After the close of markets on August 30, changes to index weights are expected.
Pagaria said that given the pace of domestic equity and its momentum, India’s weight could reach 22% by year end.
Fund managers and analysts agree that India’s growing presence in the MSCI Emerging Markets Index (EM) increases the index’s appeal for global investors, who were previously cautious because of China’s dominant position.
The change will make India an attractive investment destination for those looking to invest alone, with its growing equity market and increased free-float of companies. New large listings are also expected to narrow the weighting gap by the end of the year.
Market watchers say that global funds are likely to be cautious in the market as a whole and play only a few stocks, especially on Asia’s 5th largest stock market. This is due to the very high prices of the scrips.
Bharti Airtel will also see their index weighting increase, as well as Coal India and Mphasis. Maruti Suzuki India will also see its weightage reduced.
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