Chinese A-shares and country-specific exchange traded funds experienced their largest one-day jump in almost three months on speculation that MSCI could add mainland traded Chinese stocks to its benchmark Emerging Markets Index.
The Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) and Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) led gains Tuesday, rising 5.0% and 4.5%, respectively. The two China A-shares ETFs include a larger tilt toward more middle capitalization-weighted companies. Both ETFs are testing their short-term resistance at the 50-day simple moving average.
Meanwhile, the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) , the largest China A-shares-related ETF, rose 4.2%, breaking above its 50-day moving average.
Mainland Chinese A-shares market remains an underrepresented area for international investors, but things could change if a major index provider like MSCI starts including the securities in a widely observed benchmark like the MSCI Emerging Markets Index, potentially shifting the way global money managers allocate billions of dollars in their emerging market positions.
Chinese markets jumped Tuesday after Goldman Sachs Group said it was likely that A-shares would be included in MSCI’s global benchmark indices due to new rules aimed at curbing trading halts and a clarification by the regulator about beneficial ownership rules, Bloomberg reports.
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“The market is expecting that mainland shares will have a pretty high chance of joining the MSCI’s global indexes next month,” Wang Zheng, chief investment officer at Jingxi Investment Management Co., told Bloomberg.
The Shanghai and Shenzhen stock exchanges announced new curbs on company trading halts while the China Securities Regulatory Commission said regulators recognize and respect the rights and interests of foreign beneficial owners of securities. The announcements helped address two impediments that MSCI was concerned about when including China’s yuan-denominated stocks.
As an indication of rising optimism over MSCI’s China A-shares stance, an ETF in Hong Kong experienced net inflows of $2 billion yuan, or $303.8 million, on Monday, following 600 million yuan in inflows over the past week, the Wall Street Journal reports.
“The institutions are clearly bargain hunting [for] blue-chips,” Jacky Zhang, an analyst at BOC International, told the WSJ.
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db X-trackers Harvest CSI 300 China A-Shares Fund