Asian shares up after MSCI announces China weighting boost

March 01, 2019 10:33
Chinese shares rallied after MSCI said it would quadruple the weighting of mainland shares in its global benchmarks later this year. Photo: AFP

Asian shares rose on Friday, driven by a rally in Chinese markets after index publisher MSCI announced it would boost the proportion of mainland shares in its global benchmarks, Reuters reports.

Chinese shares rallied, with the blue-chip CSI300 index adding 1.2 percent after MSCI said it would quadruple the weighting of mainland shares in its global benchmarks later this year, potentially drawing more than US$80 billion of fresh foreign inflows to the world’s second-biggest economy.

That, along with strength in other markets in the region, helped push MSCI’s broadest index of Asia-Pacific shares outside Japan up more than 0.3 percent.

The boost in mainland stocks on Friday follows a strong run for Chinese shares, which posted their strongest month in nearly four years in February, largely driven by investor hopes for government stimulus and policy support, as well as optimism over US-China trade talks.

“Just two months ago China was facing one of the worst years it’s ever had in terms of equity market performance. So I think investors are taking very seriously the fact that the rebalancing of MSCI is happening,” said Jim McCafferty, head of equity research, Asia ex-Japan at Nomura.

“There’s a disconnect between China’s place in the world economy and China’s place in the world’s stock markets. And the two things can’t be diverged for so long,” he said.

The weighting increase, announced on Thursday, may be a milestone in Beijing’s efforts to internationalize the yuan.

MSCI also said that it will add Chinese mid-cap stocks to its emerging market benchmark in November, boosting the number of Chinese constituents.

MSCI’s milestone China inclusion in 2018 was a positive experience for global investors, and “has fostered their appetite to increase further their exposure to the mainland China equity market”, MSCI managing director Remy Briand said.

The decision, largely within expectations, marks a win for Beijing, which has stepped up efforts to woo foreign investment in the face of a slowing economy and prolonged trade friction with the United States.

“Inclusion should boost investor sentiment and, over the long term, flows into China,” Caroline Yu Maurer, head of Greater China equities at BNP Paribas Asset Management, said in a note.

"It also helps advance President Xi Jinping’s ambitions to make the renminbi a global currency,” she said.

The stock market gains in Asia contrast with a weaker finish on Wall Street on Thursday.

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