Smartphone giant Xiaomi and online video platform Iqiyi are among a dozen listed companies to be added to MSCI’s benchmark Chinese equities gauge, the global index compiler announced on Monday.
The inclusion of the stocks in the MSCI China Index at the end of February is likely to benefit them in the long term because they may attract global funds that track such indexes, said analysts. MSCI claims to serve “99 of the top 100 largest money managers”.
“Those funds will not buy and sell frequently but [they will] hold the stock, so the overall supply in the market will reduce and it will help long-term stability for the share price. I believe it will help their long-term share price go up,” said Castor Pang Wai-sun, head of research for Core Pacific-Yamaichi.
Twelve securities will be added to the index, and none deleted, MSCI Global Standard Indexes said in a note.
A total of 17 components will be added across the world to MSCI’s gauges, with the majority in China. Taiwan and Europe will each see one stock added to their benchmark indexes while in the US, three will be added and one removed.
The MSCI China Index currently includes 459 constituents, representing large and mid-cap stocks in the world’s second largest economy, and accounting for roughly 85 per cent of its total equities.
Last week asset management company Amundi stated a preference for the Hang Seng China Enterprises Index over the MSCI China Index, noting it was cheaper because of its higher exposure to financials that performed badly last year.
Some of the stocks to be added have faired poorly post-IPO.
Food delivery service platform Meituan Dianping, for example, is now down by 17 per cent since listing in Hong Kong. Xiaomi has fallen almost 40 per cent since its IPO in July, and e-commerce firm Pinduoduo now sits just 0.14 per cent up from its debut price, having taken a beating when it listed on the Nasdaq in the same month.
Other additions include Tencent Music Entertainment Group and video sharing website Bilibili.
According to Pang, investors expected such stocks to be included in the component index because of their sufficient market caps, and have bought into them with a view to taking profit once an announcement was made. That could make the stocks volatile in the short term.
“The announcement should have a positive impact for the long term price [of the stocks] but, for the short term, most investors already believed these stocks may become component stocks for a global index, so have already included them in their holdings,” he said. “After the announcement they have the chance to take profit once shares rebound.”
Xiaomi dropped on Tuesday to end 0.93 per cent lower at HK$10.60, while Meituan Dianping fell 4.01 per cent to HK$59.90, after reaching its highest price since November on Monday.
The companies will need strong earnings announcements to see a real rebound in the long term, said Pang.
That is looking problematic, after a report by research firm IDC on Monday showed shipments of Xiaomi and Apple smartphones in China plummeted during the fourth quarter of 2018. Xiaomi’s shipments were down by over a third compared to the same period a year earlier amid an overall shrinking of demand in the world’s largest smartphone market.
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