Beijing Shanghai High Speed Rail And SMIC International'S Northward Capital Inflow Into MSCI Slows Down And Enters A "Wait-And-See" Period

In the early morning of August 13, Mingsheng company (MSci) announced the quarterly evaluation and adjustment results of MSCI stock index in August on its official website. MSCI global standard index added 18 stocks, including Zhuo Shengwei, Beijing Shanghai high speed railway and postal savings bank.

These three stocks are also included in the MSCI China A-share index.

In addition, a number of individual stocks such as SMIC are newly included in the MSCI China A-share onshore index and MSCI China full circulation index.

The adjustment will be implemented after the closing on August 31 and will take effect on September 1.

However, the trend of foreign investment is not the same as before.

On the same day, the total trading volume of northbound funds reached 97.893 billion yuan, a new low since July, and dropped below 100 billion yuan for the first time since July. The net purchase volume on that day was - 2.083 billion yuan.

As of August 13, the total inflow of northward funds this week was 236 million yuan. If the time was extended to one month, it would be a net outflow of 4.214 billion yuan, with a total net inflow of 124.330 billion yuan this year.

Effective after closing on August 31

According to the official website of MSCI, this quarterly adjustment announced the new and excluded lists of major index series such as MSCI global standard, MSCI global small cap and MSCI global micro market.

Specifically, concerning A-share companies, 18 new stocks were added to the MSCI global standard index, including 3 A-share stocks, namely Beijing Shanghai high-speed railway, postal savings bank and Zhuo Shengwei.

In terms of total market value, the three largest companies with the largest market value increased by MSCI Emerging market index are postal savings bank, Beijing Shanghai high speed railway and yandex a (Russian company).

The index has a great influence, and huge amount of funds will buy and sell with the adjustment of the index.

MSCI China A-share index added Beijing Shanghai high-speed rail, postal savings bank and Zhuosheng micro three A-share targets, without excluding the target.

From the data point of view, this round of adjustment is not big. MSCI China A-share onshore Index added 7 constituent stocks, excluding 2 underlying stocks; MSCI China A-share added 2 stocks in the small cap index, and eliminated 13 stocks; MSCI China Total Stock Index added 9 stocks; excluded Ruian real estate (Hong Kong stock) 1 stock. MSCI China Small Cap Index added 1 stock, excluding 19 stocks.

"For the MSCI China all stock index and the MSCI China A-share onshore index, due to the relatively small amount of overseas funds tracking these two indexes, the amount of capital inflow and outflow that may be brought about by this adjustment is relatively limited." The interviewees pointed out.

Compared with the semi annual index review in May and November of each year, the scope and range of adjustment of MSCI's quarterly index review are smaller. All adjustments will be implemented after the closing of August 31 and take effect on September 1.

The strategy team of CICC pointed out that in terms of capital flow, according to the historical experience of index adjustment, in order to reduce the tracking error of the index as much as possible, passive funds usually adjust their positions on the last day, that is, August 31. Therefore, it is often seen that the "abnormal" amplification of transactions of individual stocks with large weight changes, especially at the end of the day. In contrast, active funds do not have this constraint, so they can choose the time point of allocation.

From the perspective of market practice, the earlier the adjustment date (especially before the announcement) is driven by arbitrage funds, and the stocks with potential accidents (not easy to be predicted) or liquidity deviation in daily trading tend to react more. After the announcement of the results but before the official implementation date, some arbitrage funds will be allocated according to the formal results.

However, on the formal implementation date of the adjustment, although passive funds "must" adjust positions according to the weight changes, the actual change of stock price may not be consistent with the direction of weight adjustment. On the contrary, it will be more affected by the strength comparison between early arbitrage funds and passive funds. There is no lack of the situation that the stock prices of newly incorporated or increased weight stocks fall on the implementation date of adjustment.

Capital inflow slows down

After the three major international indexes were intensively incorporated into A-shares in 2019, the inflow of capital from northbound slowed down and entered the "wait-and-see" period.

On August 13, the Shanghai Composite Index rose 0.04% to 3320.73, while the Shenzhen composite index fell 0.13% to 13291.32. The total turnover of Shanghai and Shenzhen stock exchanges was 883.316 billion yuan, down 18.62% from 1085.4 billion yuan in the previous trading day. The trading volume of a shares on that day was lower than the average value of five days, and the market trading volume continued to decline.

According to wind data, as of August 13, the total inflow of northward funds this week was 236 million yuan. If the time was extended to one month, it would be a net outflow of 4.214 billion yuan, with a total net inflow of 124.330 billion yuan this year.

The funds from the south are more than those from the north.

As of August 13, the total outflow of southbound funds this week was 3.557 billion yuan. If the time was extended to one month, the net outflow was 11.783 billion yuan, and the total net outflow so far this year was 402.763 billion yuan.

The purchase amount of net shares of cny0.052 billion, which were RMB 0.452 billion, was the highest among the net sales amount of cny0.452 billion, and the highest amount of RMB 0.452 billion was sold by China National Food and Technology Group Co., Ltd., and Beijing Haidong Pharmaceutical Co., Ltd., respectively RMB 227 million, Hengrui pharmaceutical 2.871 billion, China Ping An 1.597 billion.

In terms of valuation, the average PE of Shanghai Hong Kong stock connect banking industry and real estate II was lower than 10 times, 5.69 times and 8.47 times respectively.

After the three major international indexes were intensively incorporated into A-shares in 2019, the inflow of capital from northbound slowed down and entered the "wait-and-see" period.

However, many experts in the industry believe that foreign capital allocation funds will still flow into the Chinese market in the future. There are fluctuations in the process of foreign capital allocation in China, but the trend of increasing the allocation of foreign capital to China in the medium and long term has not changed.

Just on August 13, Golden Bridge water fund, the world's No. 1 hedge fund with a management scale of about 140 billion US dollars, confirmed a large increase in its position in China in the second quarter.