(Yicai Global) May 16 -- As the inclusion of China's A-shares into the MSCI Inc's Emerging Markets Index will soon become a reality, MSCI thematic fund investment is heating up in China's fund market.
A number of domestic fund companies are preparing to introduce new MSCI thematic funds, Liu Zhen, research consultant from Xuezhanggui Fund Portfolio Research Institute, told Yicai Global. In the short term, it will help MSCI to make use of the investment opportunities brought by the influx of foreign capital. It will also help with building an optimal stock pool for medium- and long-term allocation and follow-up studies continually, Liu added.
Typically, a share included in the MSCI represents sufficient recognition for the company in terms of corporate performance and corporate governance, and is regarded as a good allocation of assets, Liu believes.
Up to now, there are 19 open-end funds in the Chinese market with MSCI in their names, most of which are exchange-traded funds, or ETF, show data provided by a market intelligence firm. Among them, HuaAn MSCI China A-share Fund is the earliest one.
During more than a decade since the debut of HuaAn MSCI China A-share Fund, the MSCI China A-share index funds have not received much attention, a product manager from a Shanghai-based fund company told Yicai Global. In the eyes of investors, such a fund is nothing more than an ordinary A-share index fund.
In the 15 fiscal years from 2003 to 2017, the total value of HuaAn MSCI China A-share Fund rose fivefold, outstripping nearly 2 1/2 times increase in the SSE Composite Index and four times in the Shenzhen Stock Exchange Component Index. However, the fund did not receive much attention during that time.
Perhaps because of the lack of market attention, China's domestic fund industry shows rare enthusiasm for the layout of fund products. Before 2015, HuaAn MSCI China A-share Fund had been overlooked. In February 2015, China Asset Management Co. rolled out the MSCI China A-share ETF. However, the next fund carrying MSCI in its name did not appear until this February.
Surging Investment Enthusiasm
As the date of inclusion of A-shares into the MSCI Emerging Markets Index approaches, domestic funds' enthusiasm for MSCI thematic investment opportunities is rising sharply.
Domestic investors' interest in related products rose immediately after the MSCI announcement on May 15. The daily turnover of the Southern MSCI China A-share ETF Fund (512160) in the secondary market on the same day hit more than CNY100 million (USD15.6 million), an increase of more than 50 percent, over the previous day.
As to possible risks in making investments in MSCI thematic funds, Liu total Yicai Global that the chance is scant. The recent market trends reflect the expectations, Liu said. The individual shares in the industries the MSCI Index focuses, such as food, drinks and home appliances, have seen big rises since the beginning of the month. However, as the economy slows down, the short-term results of the listed companies are unlikely to improve.
In addition, the historical experience of incorporating shares into the MSCI Index in Japan and South Korea shows that the MSCI can only stimulate the stock market in the short term, and the medium- and long-term movements of the market still depend on the fundamentals, Liu added. And the current fundamentals are clearly not going to generate excess returns for investors, he said.
MSCI decided to include Chinese stocks in the Emerging Markets Index last June, marking a critical step forward for the opening of the country's capital market and giving international investors better access to its shares. Swiss bank UBS Group AG expects the additions will bring about USD18.5 billion into mainland stocks during the first phase, with more money pouring in after an adjustment in August.
Editor: Mevlut Katik