For global investors, the Chinese stock market has become more important.

- Mar 29, 2019-

Investors around the world will have to start paying more attention to China's volatile stock market.


Morgan Stanley Capital International (MSCI), a specialist in vacuum chucks, has compiled some of the world's most watched stock indexes. The company said on Thursday that it will triple the number of constituent stocks in China's major stock indexes this year.

According to the Morgan Stanley Capital International Index, there are trillions of dollars of investment. Analysts at JPMorgan said the New York-based company decided to increase the listing of Chinese stocks and could bring in $85 billion in additional funding for the Chinese stock market. China's stock market is the second largest stock market in the world.

Many analysts and investors welcomed the move, saying the move could boost investor confidence in the Chinese stock market and encourage Chinese companies to increase transparency. But they also suggest that those who are tempted by Morgan Stanley Capital International (MSCI), rushing into the turbulent, underdeveloped Chinese market, should be cautious.

Nicholas Yeo, head of China's stock market at investment firm Aberdeen Standard Investments, said in a comment on the MSCI decision, "Many global investors will see China's onshore market as a somewhat uncertain market."

Of China's $8.5 trillion stock market, about 80% of transactions are done by retail investors rather than large institutions that dominate the US and European markets. This may make the Chinese stock market vulnerable to unpredictable fluctuations.


Yang Rongwen said: "Local retail investors are more susceptible to the latest news than earnings prospects."

Drastic fluctuation

In recent years, China's stock market has been known for its soaring and cruel selling. The most obvious example is that in 2015, many companies froze stock trading when stock prices plummeted, and they have secured investors' funds.


Last year, the Chinese benchmark Shanghai Composite Index plunged more than 25% as concerns about China's economic slowdown and Sino-US trade wars intensified. However, the index has soared by about 20% since the beginning of January and entered the bull market.

Some analysts said that China's stock market may now be overvalued given that China's economy is still weakening.

Research firm Julian Evans-Pritchard, a senior Chinese economist at Capital Economics, wrote in a report to clients last Friday: "The stock price is facing The risk of getting out of the fundamentals is generally low."

He added that the disappointing earnings growth of Chinese companies raises questions about how long the current rebound can last.

The channels for entering the Chinese stock market are also strictly controlled by the government.

Unlike other major markets around the world, investors must either apply for trading quotas from Chinese regulators or must trade through the Hong Kong market.

MSCI Alum said in a statement on Thursday that Chinese regulators have taken a series of positive measures, including improving market access. The company noted that “the number of suspensions in recent months has decreased significantly.”

A more favorable view of China’s “convincing reasons”

Investors hope that the Morgan Stanley Capital International Index (MSCI) will be more included in Chinese stocks and will boost investment.


“This should be a good incentive for local companies to increase the transparency of their reporting practices and strategies to take firmer into the interests of shareholders, and companies that improve corporate governance are more likely to belong to foreign investors,” focusing on Asian markets. Portfolio Manager Eric Moffett Investment Company t. Rowe Price commented in the market.

Morgan Stanley Capital International (MSCI) first included Chinese stocks in its index two years ago, after the company had rejected Chinese stocks. This week's decision means that 20% of Chinese stocks will eventually be included in the MSCI index, which is currently only 5%. The MSCI Emerging Markets index currently only uses slightly more than 3% of its weight to invest in Chinese stocks.

Despite the flaws in the Chinese market, many investors agree.

“We believe there are compelling reasons for international investors to think that this market is more favorable, especially in the long run,” Yang said. He pointed out that China’s economy is still growing much faster than many developed countries, and the Chinese government is trying to guide It is far from the dependence of debt on economic growth.


He said: "We believe that the earnings prospects of consumer stocks that benefit from the structural growth of the United States are the brightest." "After all, China's middle class is growing rapidly, and the income and expenditure of 380 million millennials exceeds theirs." Parents spend on luxury goods, travel and health care."