SINGAPORE - MSCI is cutting dozens of Chinese companies from its global benchmarks, after many stocks tumbled as the market erased trillions of dollars in value.
The index provider is removing 66 companies from its MSCI China Index in its latest quarterly review, the highest tally in at least two years. The changes, effective from the close on Feb 29, also apply to the MSCI All Country World Index. Stocks to be cut include property developers Gemdale and Greentown China Holdings, as well as China Southern Airlines and Ping An Healthcare and Technology.
The removals come as China’s weighting in global portfolios slumps amid worries about its struggling property sector and weak consumption, and as alternatives such as India become more prominent. In a sign of the deep pessimism about the China and Hong Kong stock markets, equity rallies spurred by a slew of policy support measures last week faded within a few sessions ahead of the Lunar New Year break.
“It highlights the issue of negative flows for Chinese stocks as investors reduce exposure to the country, in large part due to recent weak fundamentals, but also fears of ongoing financial instability, regulatory uncertainty and – most of all – country risk,” said senior market analyst Kyle Rodda at Capital.Com Inc.
“Some investors may also be forced to liquidate because of losses already incurred or because certain companies no longer fall within investment mandates,” he added.
Three stocks will be deleted from the Hong Kong index as well: Budweiser Brewing Co Apac, New World Development and Xinyi Glass Holdings.
The news was not all about cuts, though. Five components will be added to the MSCI China Index, including electrical appliance maker Midea Group and skin-treatment company Giant Biogene Holding.
Still, the high number of deletions could weigh as Hong Kong resumes trading on Feb 14. MSCI takes a number of factors into account for including stocks in its standard indexes, including market capitalisation, free float and extreme price increases.
“The deletion list of Chinese companies, spanning a wide range of sectors from technology, property and retail to health care, solidifies the perception of systemic-based concerns over the world’s second-largest economy,” said market analyst Hebe Chen at IG Markets. REUTERS
