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Business News/ Markets / Stock Markets/  MSCI deletions reflect falling confidence in China stocks
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MSCI deletions reflect falling confidence in China stocks

wsj

Because of the changes, funds that track the index will have to sell holdings, which is likely to further weigh on the market

Analysts at UOB Global Economics & Markets Research said that MSCI’s changes posed further downside risks in China’s stock markets, including for investors that may be forced to liquidate. (Photo: Reuters)Premium
Analysts at UOB Global Economics & Markets Research said that MSCI’s changes posed further downside risks in China’s stock markets, including for investors that may be forced to liquidate. (Photo: Reuters)

MSCI’s decision to drop dozens of Chinese names from multiple indexes will weigh on China’s markets when they reopen after the Lunar New Year holidays, undoing some of Beijing’s recent efforts to restore confidence in equities, analysts say.

The index compiler’s changes in its MSCI China Index saw a net loss of 61 names to leave about 700 companies “highlights a shifted frame of mind of investing in China," said Hebe Chen, a market analyst at IG Markets. The number of deletions underscores not only “a deepening confidence deficit in the removed companies, but also reflects the gloomy outlook for the China stocks," she said.

The move also will “largely offset" efforts before the holiday break to boost confidence and the Chinese market continues to be in the “shadows," Chen said.

MSCI’s decision, coming in a quarterly review Monday that also deleted dozens of Chinese names from the MSCI China All Shares Index, the China A Index, the China A International Index and the China-A Onshore Index, weighed on the Hong Kong market early Wednesday.

The benchmark Hang Seng Index dropped as much as 1.8% before moving into the green at the midday break.

Some of the deleted companies are also listed in Hong Kong, including Greentown China, Ping An Healthcare and Technology, which lost 3.1% and 0.9%, respectively.

Analysts at UOB Global Economics & Markets Research said in a note that MSCI’s changes posed “further downside risks in China’s stock markets," including for investors that “may be forced to liquidate."

Because of the changes, funds that track the index will have to sell holdings, which is likely to further weigh on the market.

The deletions come after a prolonged period of weakness in Chinese markets amid concerns that the country isn’t recovering from the pandemic as quickly as hoped and that officials haven’t done enough to help markets hard hit by a property slump and various sectoral crackdowns. The MSCI China Index has dropped 8.5% since the beginning of the year, and more than 26% over the past 12 months.

Before the holiday break, China’s securities regulator said it had advised China’s listed companies to make full use of “the toolbox" available to them to boost investor confidence and market stability, such as conducting share buybacks, boosting major shareholder’s stakes and declaring regular dividends.

Write to Tracy Qu at tracy.qu@wsj.com

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