>>> CHINA on MSCI Index - May Spook Indian Market <<<
The outcome of a meeting on June 9 of the committee that constructs the MSCI Emerging Market Index — a key benchmark used by global fund managers to invest — may have repercussions for the Indian stock market.
If the decision to include 'China A' shares in MSCI Emerging Market index finds acceptance, the weight of the Chinese markets would increase in MSCI index, which may result in passive funds reducing their exposure to Indian equities and redeploying their funds in China.
China A shares are stocks that are denominated in yuan and traded on Shanghai and Shenzhen stock exchanges. Analysts say that if China A shares are included in MSCI index, the weight of China is likely to increase by 13% to 38% in MSCI Emerging Market Index.
Foreign portfolio investors (FPIs) own 22% of total equities in India while these hold only 5.7% of mainland Chinese equities. Thus, if China continues to remove the restrictions on foreign funds, there is headroom for funds to move to China. MSCI is expected to include 'A' shares in phases over the next one year to minimise volatility in other markets. As part of the index rejig, MSCI will wait for at least 12 months to allow investors to adjust their portfolios. MSCI will be adding 5% of around 200 eligible A shares to the emerging-market index, accounting for less than 1% of the benchmark.
China may attract about $2 billion from funds tracking the index following the initial inclusion. Some experts believe the impact on India could be less dramatic.
In case of full inclusion, India's weight may come down to 4.5% from 7.2% at present. Out of the $330-billion asset under management of foreign funds in India, 21% is invested by the emerging market funds.
Thus, any reallocation by these funds could rattle Dalal Street.
Currently, 25% of the MSCI EM index is composed of mainland Chinese companies listed in Hong Kong. Such stocks are known as 'H' shares. Inclusion of China 'A' will also have huge implications in the way global portfolio managers play the EMs which equity attract investments of $1.7 trillion — a number that's close to India's GDP
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May be market looking for some triggers like MSCI Index as mentioned above. For these days INdian INdex continues to feel the pressure while Chinese kept going Up, shows the importance of it.
Tomorrow - after the outcome of MSCI - results may impart heavily - both indian and Chinese index. (Mostly china on Wednesday Morning )
Ofcoruse we need to go technically and hence we should watch the important supports like 8022, 8000 or 7960 if breaks may shows more weakness. So far the Hourly Index showing some sort of positive divergence from RSI. Lets hope the best. Cheers!!!
