China’s blue-chip index shrugged off initial softness to end at 1-1/2-year highs on Wednesday as investors snapped up consumer stocks after index provider MSCI added some mainland big-caps to one of its key benchmarks for global investors. The blue-chip CSI300 index shook off a bout of early profit taking to end up 1.2 percent at 3,587.96 points, its highest close since Dec. 31, 2015. The Shanghai Composite Index gained 0.5 percent to 3,156.21.
Reaction to MSCI’s announcement was largely muted in the morning as traders say a “Yes” decision had already been priced in, but a chorus of positive responses from brokerages and fund managers appeared to lure more funds into blue-chips in the afternoon. “We believe the inclusion of A-Shares in the MSCI will give a significant boost to China’s stock market in the long run,” said Kathryn Shih, president, Asia Pacific at UBS.
Rakesh Patel, head of Asia Pacific equities at HSBC, said the initial impact from the inclusion could be limited, expecting about $12-14 billion of flows from active and passive investors in the first year after inclusion. “But on a five-10 year view, there’s potential for $500 billion worth of inflows, which is huge. This is based on full weight, full inclusion for both MSCI and FTSE.”
Consumer and financials – the two main sectors to be included in the MSCI EMI – posted solid gains, rising 2.7 percent and 0.7 percent, respectively. The U.S. index publisher will add 222 yuan-denominated A shares to its MSCI Emerging Markets Index, with an initial weight of 0.73 percent. The change will take effect beginning in June 2018.