By Dow Jones Newswire
The long-awaited introduction of Chinese shares to a set of widely followed global benchmarks took effect on Friday, but its impact on stock markets was short-lived.
China’s benchmark Shanghai Composite Index /zigman2/quotes/210598127/delayed CN:SHCOMP +0.10% ended down 0.7%, following a 1.8% gain the previous day. Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +2.51% logged a 0.1% gain, building on Thursday’s 1.4% jump.
Global index provider MSCI Inc. /zigman2/quotes/202905332/composite MSCI -1.61% added around 230 mainland-listed Chinese stocks to its flagship Emerging Markets Index /zigman2/quotes/210598082/delayed XX:891800 +0.92% , and other indexes — a move expected to draw billions of dollars from investment funds into yuan-denominated stocks.
Many global money managers and institutional investors overseeing funds that track the MSCI indexes adjusted their holdings of stocks in the final minutes of trading Thursday afternoon, ahead of Friday’s official change in the benchmarks.
The trading volume of stocks in China’s CSI300 Index, which tracks 300 large-cap companies including liquor maker Kweichow Moutai Co. /zigman2/quotes/208743311/delayed CN:600519 -0.85% and developer China Vanke Co. /zigman2/quotes/203851375/delayed HK:2202 +2.25% , rose 13% on Thursday ahead of their inclusion in the MSCI indexes. Shares of Kweichow Moutai fell 0.8% on Friday, while China Vanke ended 2.3% higher.
In recent days, net fund inflows into China’s Shanghai and Shenzhen stock markets via a trading link with Hong Kong logged a noticeable rise, while funds flowing southbound from the mainland into Hong Kong stocks saw negative outflows, partly due to weakness caused by concerns including trade tensions.
One Hong Kong-listed stock jumped as much as 43% Thursday afternoon just before the market closed. Lifestyle International Holdings Ltd. , which operates the SOGO chain of department stores in Hong Kong, was added to the MSCI Hong Kong Small Cap Index Friday. Its shares ended 29% lower Friday morning after the brief spike. The company said it was unaware of any reason for the move besides the index inclusion.
“The gains in consumption-related stocks yesterday were more or less the market’s reaction to the MSCI index inclusion news,” said Zhang Gang, senior analyst at Central China Securities. Market participants were expecting foreign fund managers to snap up those stocks after the index inclusion, he added.
Ross Teverson, emerging markets head of strategy at Jupiter Asset Management , said his firm isn’t making changes to its funds because of the addition of Chinese shares to the MSCI indexes. “We generally find that A-share listed companies are less attractively valued than Hong Kong and U.S.-listed peers,” he said, noting his fund holds only two such stocks.
The initial impact of the MSCI inclusion would be small because there aren’t many large investors trying to rush into the market, added Adrian Zuercher, head of asset allocations at UBS Global Wealth Management.
He noted that “it’s still very difficult” for foreign investors to invest in China’s markets. That’s due to the country’s tight capital controls—along with limited investment quotas via the Qualified Foreign Institutional Investor (QFII) scheme and Stock Connect system linking to the Hong Kong market.
Other Asian stocks were broadly mixed Friday, a day after Italian populists struck a deal on a coalition government and more trade conflicts emerged from a Trump administration plan to impose new tariffs on steel and aluminum imports from Canada, Mexico and the European Union.
Korea’s Kospi index /zigman2/quotes/210598069/delayed KR:180721 +0.09% rose 0.7% on the back of a strong rebound in South Korean exports for May.
Meanwhile, Japan’s Nikkei /zigman2/quotes/210597971/delayed JP:NIK -0.05% ended a volatile session down 0.1%.
Malaysian stocks /zigman2/quotes/210598052/delayed MY:FBMKLCI -1.11% gained 0.9% as they built on Thursday’s rebound from a record-worst day Wednesday.
On the downside, stocks in Australia /zigman2/quotes/210598100/delayed AU:XJO +0.34% fell 0.4%, while New Zealand’s NSX-50 /zigman2/quotes/211587880/delayed NZ:NZ50GR +1.06% dropped 0.3%, hurt by a2 Milk’s /zigman2/quotes/207461975/delayed NZ:ATM +1.33% 3.9% skid.