MSCI to include more Chinese stocks in its EM index in 2018
Starting in June 2018, the MSCI will be adding 222 large-cap blue-chip Chinese stocks (FXI) (YINN) to its Emerging Markets Index (EEM) (VWO). With the inclusion, China’s A-shares would command 0.73% of the index.
“In early June 2018, it [the MSCI] will be adding China A shares (CNYA) to the MSCI Emerging Markets Index and the MSCI ACWI Index,” said Sebastien Lieblich, Global Head of Index Management Research at the MSCI in a video announcement posted on the MSCI website. Popular US-traded exchange-traded funds such as the iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI ACWI ETF (ACWI) track the performance of these MSCI indices, respectively.
222 of China’s blue chip stocks would be added
Accordingly, beginning August 2018:
- The number of China A shares in the proforma MSCI China Index (MCHI) would be 222
- The pro forma weight of China A shares in the MSCI Emerging Markets Index post the second implementation step would be approximately 0.73%
- The total number of constituents in the pro forma MSCI China Index would increase from 152 to 423
A filtered list of stocks to watch
Frontera filtered through the 222 Chinese stocks that represent the MSCI’s simulated list of constituents for favorable valuations and shortlisted 5 growth stocks (offering high forward earnings) currently trading at the lowest price (as indicated by the forward price-to-earnings ratio). These are:
|Security Name||Ticker||Mkt Cap ($bn)||Fwd EPS||Fwd P/E||Analyst Rating||Sector- Industry||YTD Return|
|Chongqing Changan Automobile Co. Ltd. (CQCAF)||000625||64.22||2.35||3.7||4.2||Consumer Discretionary- Automobiles||– 4%|
|Tahoe Group Co Ltd A (TAHO)||000732||20.83||2.12||6.9||4.8||Real Estate- Mgmt. Development||-4.3%|
|Bank of Ningbo Co., Ltd. A||002142||77.22||2.20||8.1||4.0||Financials- Banks||16.6%|
|SAIC Motor Corporation Limited A||600104||359.03||3.15||9.4||4.3||Consumer Discretionary- Automobiles||31.3%|
|Bank of Shanghai Co Ltd A||601229||153.89||2.53||9.5||4.5||Financials- Banks||9.2%|
|Data as of date June 19, 2017, Returns as of July 3|
Next we’ll look at performance and valuations of each of these stocks to understand why these are the equities that investors in China A shares should watch over the next 12 months before MSCI adds them to its fund, and their valuations turn increasingly expensive.