China’s search giant Baidu is likely to benefit more than e-commerce behemoth Alibaba from the planned restructuring of the MSCI country indices, according to the Wall Street Journal.
The two New York-listed internet companies will be included for the first time in MSCI’s China and emerging-markets indices when the stock market index provider starts including foreign-listed stocks in its closely watched country indices.
Right now, the MSCI China Index is weighted heavily toward state-owned banks and energy producers. However, it also includes Hong Kong-listed Tencent, which has a 10.3 percent weighting in the index.
Once the MSCI changes take effect in November, or perhaps even before that, Alibaba and Baidu are likely to benefit from a big inflow of investor funds.
Active asset managers take heed of what is included in the index because their performance is judged against it. And those who are underweight the Chinese internet companies will naturally have to rethink their stance, the newspaper said.
As of June last year, the MSCI Emerging Markets Index was tracked by US$228 billion of passive funds and US$1.52 trillion of actively managed funds, according to MSCI.
Of the two internet giants, Baidu stands to benefit more because MSCI bases its calculations on free-floating stock, which is much smaller for Alibaba despite its bigger market capitalization, the Post said.
Under an MSCI simulation of the changes, Alibaba would get a 3.1 percent weighting in the MSCI China Index, while Baidu would get 6.5 percent.
Once Alibaba’s share lockups expire in March, its available fleet float will more than double, allowing it to secure a bigger weighting in the index.
But even with equal weightings, Baidu is likely to attract more investor funds than Alibaba because its market value is about a third as big and its shares have been relatively neglected, the newspaper said.
Alibaba’s stock has suffered a sharp correction recently, but it is still trading 27 percent over its September IPO price, while Baidu’s is down 8 percent.
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