Smartphone giant Xiaomi and online video platform Iqiyi are among a dozen listed companies to be added to MSCI’s benchmark Chinese equities gauge, the global index compiler announced on Monday.
The inclusion of the stocks in the MSCI China Index at the end of February is likely to benefit them in the long term because they may attract global funds that track such indexes, said analysts. MSCI claims to serve “99 of the top 100 largest money managers”.
“Those funds will not buy and sell frequently but [they will] hold the stock, so the overall supply in the market will reduce and it will help long-term stability for the share price. I believe it will help their long-term share price go up” said Castor Pang Wai-sun, head of research for Core Pacific-Yamaichi.
Twelve securities will be added to the index, and none deleted, MSCI Global Standard Indexes said in a note.
That is by far the most worldwide. Taiwan and Europe will each see one stock added to their benchmark indexes while in the US, three will be added and one removed.
The MSCI China Index currently includes 459 constituents, representing large and mid-cap stocks in the world’s second largest economy, and accounting for roughly 85 per cent of its total equities.
Food delivery service platform Meituan Dianping, which has performed poorly after listing in Hong Kong, will be added. Other additions include Tencent Music Entertainment, video sharing website Bilibili and e-commerce firm Pinduoduo.
Investors expected such stocks to be included in the component index because of their sufficient market caps, and have bought into them with a view to taking profit once an announcement was made, said Pang. That could make the stocks volatile in the short term.
“The announcement should have a positive impact for the long term price [of the stocks] but, for the short term, most investors already believed these stocks may become component stocks for a global index, so have already included them in their holdings,” he said. “After the announcement they have the chance to take profit once shares rebound.”
The companies will also need strong earnings announcements to see a real rebound in the long term, he said.
That is looking problematic, after a report by research firm IDC on Monday showed shipments of Xiaomi and Apple smartphones in China plummeted during the fourth quarter of 2018. Xiaomi’s shipments were down by over a third compared to the same period a year earlier amid an overall shrinking of demand in the world’s largest smartphone market.
By midday on Tuesday, Xiaomi’s shares were up 0.18 per cent at HK$10.72, their highest price since January 7, having recovered from a sharp drop when the market opened. Meituan Dianping dropped 3.76 per cent to HK$60.05, after reaching its highest price since November on Monday.