MSCI free-float plan `to hit Asia bourses'
Edwin Chan, Reuters
SHANGHAI: Upcoming changes to the Morgan Stanley Capital International stock indices could mean big losses for Asian markets, but China's liberalising markets and long-term potential should help it weather the storm, analysts said.
MSCI, a popular benchmark for international equity investment, may shift weightings tomorrow to reflect the number of company shares available for open trade, or its ``free float''.
Japan or Hong Kong could suffer large fund outflows if share weightings are slashed as MSCI adjusts its indices to better reflect how much of a stock is tradeable and not held by non-listed firms or governments, analysts said.
China, whose firms float only small fractions of their shares, may experience the same spike in turnover and potential volatility. But it may be supported by the very fact that so many of the country's shares are off limits to foreign investors.
``B shares, Hong Kong shares and other global issues are the only ways they can invest in China, yet the market cap is actually very large.
It's a huge economy,'' said Salomon Smith Barney analyst Paul Chanin.
China's stock market capitalisation is estimated at some US$500 billion (HK$3.9 trillion) - ranking it third in Asia behind Tokyo and Hong Kong - but only a sliver of that is open to international investors through hard-currency B shares reserved for them.
Most foreigners choose to invest in a limited number of key mainland firms listed in Hong Kong, New York or in London.
China plans to allow foreign investors into closed domestic A-share markets through a qualified foreign institutional investor scheme, which regulators say could be in place by 2002.
``Over the next three, five years, there will almost certainly be an opening of the domestic markets,'' Mr Chanin said.
An MSCI consultation paper said firms in its China Free Index had floated only 20 to 30 per cent of their shares, among the markets with the smallest free float available.
Salomon Smith Barney estimates US$15-20 billion will leave Asia, although few analysts had specific figures for China.
``That's a huge amount of churn, which could be destabilising,'' Mr Chanin said.
He said shares like Guangdong Electric Power, the Shenzhen B-share market's largest capitalised stock, and Huaneng Power (0902) should enjoy short-term gains based on his review of their free floats.
Other marginal gainers, he said, included Tsingtao Brewery (0168), TCL International (1070) and China Shipping Development (1138), which have H shares listed in Hong Kong.
Other analysts dismissed the downside impact on Chinese shares as ``marginal'', even for those listed in Hong Kong.
One senior analyst at a foreign brokerage said frontline shares like top weighted China Mobile (0941) and PetroChina (0857) would hardly see their weightings altered.
``Although China Mobile will probably be modified with a lower MCF, it's recently done a placement so the company has become a bit bigger.'' she said.
9 December 2000 / 01:23 AM
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