MSCI adds Alibaba, other US-listed China shares to indexes

A sign for the Alibaba Group on the facade of the New York Stock Exchange on Nov 11, 2015.
A sign for the Alibaba Group on the facade of the New York Stock Exchange on Nov 11, 2015.PHOTO: REUTERS

NEW YORK (REUTERS) - MSCI will add Alibaba Group, Baidu.com and a dozen other Chinese companies listed overseas to its emerging market index from Dec 1, a move reflective of the changing economic landscape that is likely to draw investments of US$70 billion.

Alibaba, the world's biggest e-commerce company, is the largest of the 14 US-listed Chinese stocks to be added to MSCI indexes. Along with internet firm Baidu Inc, it will increase the presence of technology companies in the investment benchmarks.

The changes were part of quarterly adjustments MSCI makes to its indexes, which it says are tracked by US$9.5 trillion (S$13.5 trillion) in assets. Until now, MSCI did not include US.-listed companies - like Alibaba - in its specific country indexes.

"This inclusion will be more reflective of the Chinese opportunity set with big IT and consumer names being added. That shows the shift in the center of gravity from old China to new China," said Mr Charlie Wilson, portfolio manager at Thornburg Investment Management in the United States.

Investors say information technology services companies are a stronger indicator of China's domestic consumption, an area of the economy set to grow as the country shifts away somewhat from manufacturing.

Analysts estimate the MSCI changes will trigger up to US$70 billion to flow into these stocks over the next six months.

China's weighting in the MSCI Emerging Market (MSCI EM) index, which until now had only included Chinese stocks listed in Hong Kong, will increase to more than 26 per cent from just over 23 per cent, analysts said.

The weight of technology stocks in the MSCI China index will double to 26 per cent, while the share of financials and industrials will cede ground as the changes are made in two stages in November and May.

"The inclusion of these companies in global indexes will make these companies household names globally, which until now have been familiar to US investors only," said Mr Tobias Bland, chief executive of Enhanced Investments Products Limited in Hong Kong.

About a tenth of the potential US$70 billion investment would flow in automatically via passive funds that track the indexes. The rest will depend on active fund managers, who are more circumspect after a slump in China's stock markets this summer that prompted some heavy-handed intervention by Chinese authorities.

Some strategists said the latest changes could be a step towards adding China "A" stocks - yuan-denominated shares listed on the mainland. MSCI excluded them from its global indexes in June, a factor that contributed to the summer selloff in stocks.

Since the selloff, major Chinese indexes have moved higher. Earlier in November, the Shanghai Shenzhen CSI300 index and the Shanghai Composite Index reached their highest levels in more than two months.

Morningstar Inc, an investment research firm, said the MSCI changes could add US$2.7 billion in new holdings to exchange-traded funds globally that track the MSCI China Index and another US$52 billion that track MSCI's suite of emerging-market indexes.

Activity in post-market US trading was light, with Alibaba shares up just 0.5 per cent, and Baidu shares little changed.

In addition to the changes in Chinese stocks, MSCI added foreign-listed shares from Hong Kong, Israel and the Netherlands to other indexes.