MSCI Gives Star Market Green Light, Boosting Liquidity of Chinese Stocks
COVID-19 and China
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Global investment research organization and one of the world’s biggest stock market indices providers MSCI (MSCI:NYSE) announced on October 10 that companies listed on the Shanghai Stock Exchange Sci-Tech Innovation Board, known as the Star Market, will be included in the firm’s indices as soon as next month.

The vast majority of the Star board stocks went up after this news. Nonetheless, the combined market capitalization of the first 29 stocks that got listed in the experimental marketplace bounced back by nearly 1% from the opening CNY 526.52 billion (USD 74.18 billion) to the CNY 519.59 billion (USD 73.18 billion) recorded at the end of trading on October 11.

Read more about the new submarket on the Shanghai bourse in the latest EqualOcean report (download).

MSCI, formerly Morgan Stanley Capital International, is a global investment decision support tools provider. Founded in 1998 and based in New York, it is among the most prominent market index makers and maintainers planetwide. Recently, the company has been operating on high margins, with its core business growing over time; according to the annual financial results, the operating revenues climbed up by 12.5% in 2018, while recurring subscription revenues increased by 9.6% and asset-based fees grew by another 21.9% in the same year.

MSCI has previously expressed its interest in the new SSE project and the stocks listed in the sci-tech venue. It issued a standard announcement on July 19, three days before the first batch of companies kicked off trading on the fresh tech board in Shanghai. In this statement, the index compiler made it clear that MSCI is “aware of the upcoming launch of the Sci-Tech Innovation Board on the Shanghai Stock Exchange” and “is currently assessing its eligibility in the MSCI Global Investable Market Indexes.”

By increasing asset liquidity on a global scale, this move might propel the comprehensive reform of China’s capital markets – which is being a priority these days. Higher market participation, coming with an influx of capital from diverse sources, is likely to positively affect one of the most challenging issues for the country’s economic growth – the extreme volatility of its stock markets.

The former listing system on the two China’s mainland’s bourses has been formally under reconstruction, as a pilot project of the Star Market was initiated.

At the same time, the state has undertaken other steps to resolve the fundamental hindrances existing within the economy. For example, as EqualOcean reported in September, the ‘Qualified Foreign Institutional Investor’ scheme quota limits were canceled by the State Administration of Foreign Exchange (SAFE), which will possibly make it simpler for the foreign entities to invest in the country’s secondary market.

China’s ‘Buffett indicator’ – or the market cap-to-GDP ratio – has been hovering below 65% since the global financial crisis of 2007-2008. One reason is that the household sector – a significant potential growth driver –  is seemingly hibernating: people are still inclined to save more while investing less. Another contributing factor is the large number of firms that have settled down with their stocks in Hong Kong, North America and Europe.

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