Source: Finance Association
① Which individual stocks will MSCI China adjust quarterly? ② How much impact does the MSCI Index have on the market?
Yesterday morning, MSCI announced the May 2024 semi-annual index review results for all of its indices, including the MSCI China Index. Since this adjustment is a major semi-annual adjustment, there is a wide range of index increases and decreases and other adjustments involved, and the impact may also be greater.
MSCI China quarterly adjustments: 10 new, 56 removed
CICC indicated that MSCI China included 10 constituent stocks in this quarter. Among them, 2 Hong Kong stocks were included,$HISENSE HA (00921.HK)$und$MMG (01208.HK)$. Meanwhile, 8 new A-shares have been added, respectively$Citic Pacific Special Steel Group (000708.SZ)$,$Hisense Home Appliances Group (000921.SZ)$,$Zhejiang Wanfeng Auto Wheel (002085.SZ)$,$Jchx Mining Management (603979.SH)$,$Pingdingshan Tianan Coal Mining (601666.SH)$,$Nanjing Iron & Steel (600282.SH)$,$Tiandi Science & Technology (600582.SH)$und$CNOOC Energy Technology & Services (600968.SH)$.
While 10 constituent stocks were included, MSCI China excluded 56 constituent stocks in this quarter. Of these, 15 Hong Kong stocks were excluded, respectively$ZAI LAB (09688.HK)$,$KINGBOARD HLDG (00148.HK)$,$CG SERVICES (06098.HK)$,$ZA ONLINE (06060.HK)$,$CMS (00867.HK)$,$YUEXIU PROPERTY (00123.HK)$,$EAST BUY (01797.HK)$,$CHINA CINDA (01359.HK)$,$SANY INT'L (00631.HK)$,$AIR CHINA (00753.HK)$,$CHINA OVS PPT (02669.HK)$,$DONGFENG GROUP (00489.HK)$,$FOSUN PHARMA (02196.HK)$,$COSCO SHIP PORT (01199.HK)$,$COUNTRY GARDEN (02007.HK)$.
CICC also pointed out that the number of MSCI China's quarterly adjusted constituent stocks was reduced from 703 to 657 (486 A shares, with a weight of 15.4%; 154 Hong Kong stocks, with a weight of 75.8%; 14 Chinese securities, with a weight of 8.5%; and 3 B shares, with a weight of 0.2%). At the same time, MSCI also adjusted the free circulation factors of 27 companies and the number of shares included in 139 companies, which will also change the weight of constituent stocks within the index.
Potential impact: Focus on the positive impact on Hisense Home Appliances H, Minmetals Resources, Gujinggong B, China Resources Pharmaceuticals, etc.
Judging from the magnitude of the change in absolute weight, CICC estimates that due to this adjustment, Tencent Holdings, Hisense Home Appliance H, Minmetals Resources, and Ideal Automobile-W ranked high in weight increases, ranging from 0.15% to 0.07%.
In contrast, Alibaba-SW, Zaiding Pharmaceutical, Jiantao Group, Country Garden Services, Zhongan Online, and Kangzhe Pharmaceuticals saw the biggest drop in weight in the index, ranging from 0.27% to 0.06% due to dilution or exclusion.
From the perspective of trading and position adjustments, CICC also needs to determine the specific impact based on the average daily turnover of individual stocks. Based on the assumption that passive funds of the current size of 103.7 billion US dollars (assuming about 5% of the current MSCI China Index's overall market value of 2.07 trillion US dollars) track the MSCI China Index, combined with the average daily turnover of individual stocks over the past 20 days.
The brokerage firm estimates that the transaction time required for Hisense Home Appliances, Minmetals Resources, Gujing Gong B, China Building Materials, Kangfang Biotech, China Building Materials and Zangge Mining all reached more than 1 day, of which Hisense Home Appliances needed about 7 days; the passive funds required for transactions involving COSCO Shipping Port, Jiantao Group, Zaiding Pharmaceutical, Zhongan Online, Fosun Pharmaceuticals, China Cinda, and Kangzhe Pharmaceutical all spent more than 7 days.
When will the MSCI Index be adjusted?
All of the above adjustments will be implemented after the market closes on May 31, and will officially take effect on June 1.
CICC believes that in terms of capital flow, judging from the historical experience of index adjustments, passive capital usually adjusts positions on the last day, May 31, in order to reduce tracking errors in the index as much as possible, so they often see an “abnormal” increase in individual stock transactions with large weight changes, especially at the end of the session. In contrast, active funds do not have this restriction; they can take the opportunity to choose when to allocate them. In particular, it is recommended to focus on the potential impact of some individual stocks with poor liquidity.
Judging from the impact on stock prices, before the official implementation date, some arbitrage funds will also lay out corresponding individual stocks based on the official results, especially those unexpected results that were not fully predicted by the market before.
However, it should be noted that although passive funds “must” adjust positions according to weight changes on the official implementation date of the adjustment, actual changes in stock prices during this period are not necessarily in line with the direction of weight adjustments. Instead, they will be more affected by the comparison of strength and weakness between early arbitrage funds and passive funds. Previously, there was no shortage of cases where the stock prices of newly included or weighted stocks fell on the day the adjustment was implemented.
editor/tolk