China market round-up: MSCI holds consultation on quadrupling A-shares index weight, China and the Philippines will launch currency trading platform, China PMIs fall

In this round-up, MSCI proposes plans to increase four-fold the weighting of A-shares in its emerging markets (EM) index, China and the Philippines are launching a peso and renminbi trading platform next month, and weaker external demand drags down China's PMIs.

  • By Rebecca Feng
  • 02 Nov 2018
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MSCI held a consultation meeting last Friday in Hong Kong regarding including more A-shares in its products, according to an October 29 client note by HSBC.

MSCI put forward three proposals regarding including A-shares in its EM index. First, the index provider plans to quadruple China A-shares weighting from the current 5% to 20% in two phases, 7.5% each in May and August 2019. Second, it will add stocks on ChiNext, the listing venue for China’s high-tech firms, to the list of eligible securities in May 2019. Third, the index provider plans to include mid-cap A-shares with a 20% weighting in one phase in May 2020.

With the new proposals, A-share weighting will increase from the current 0.71% to 3.36% by May 2020.

The timing of these new proposals, which came shortly after the second phase of A shares inclusion at the end of August, was bold, HSBC said in the note. However, that was likely because of the successful completion of the first two phases. While MSCI originally expected $22bn of new inflows in the first two inclusion phases, data shows new inflows reached nearly $46bn, according to MSCI data.

MSCI also noted two of the major remaining infrastructural constraints to be addressed, namely the settlement challenges in complying with same-day settlement for overseas accounts, and the limited hedging instruments available to foreign investors.
The report confirmed that MSCI’s long-term objective is the full inclusion of A-shares, which would give China a 40% weighting in the MSCI EM index.

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China and Japan signed a memorandum of understanding (MOU) to enhance ties in the financial sector and improve mutual market access during Japanese Prime Minister Shinzo Abe’s three-day visit.

Under the MOU, Japanese institutions will be able to launch securities services for and provide more investment products to Chinese investors, according to an October 26 statement by the Asset Management Association of China.

The previously reported agreement to set up a Japan-China industrial cooperation fund was made possible by this MOU. Nomura, China Investment Corporation, Daiwa Securities, MUFG, Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho joined the agreement.

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Shanghai celebrated the fifth anniversary of its pilot free-trade zone (FTZ), according to an official statement issued on October 30 by the Shanghai Free Trade Zone authority.

In terms of attracting foreign investments, the Shanghai FTZ has significantly trimmed down its negative list for foreign investment since the list was first introduced in 2013. In the past five years, the list has shortened from 190 names to 45 names.

The approval period for companies to engage in investing activities in the FTZ has also been shortened to three days from three to six months previously. There were more than 1,900 foreign-invested projects as of the end of 2017.

This month, Shanghai also started to adopt the negative list approach for the sectors of transportation, insurance, and communication.

Commercial banks will be allowed to form asset investment and management companies without any cap on foreign ownership, and foreign investors will be allowed to take majority stakes in domestic life insurance companies based in the zone. The statement did not give a precise timeframe for these developments.

So far, more than 54,000 companies are registered in the FTZ, with nearly 10,000 of them foreign-invested.

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Aberdeen Standard Investments (ASI), a Scotland-based global asset manager, has expanded its Asian investment team with four new portfolio managers joining in Shanghai and Hong Kong, according to a company press release on November 1.

The move bolsters the firm’s onshore investment capability and reinforces its long-term commitment to the China market.
The four new hires are Edmund Go, Asian fixed income investment manager, Aaron Ni, investment manager for onshore China credits, Alec Jin, investment manager for Asian equities, and Stella Li, investment manager for China equities.  

“China’s long-term growth outlook presents considerable opportunities for active stock pickers,” Nicholas Yeo, head of China equities, said. “In spite of the recent correction in valuations, which signifies a disconnect between fundamentals and investor sentiment, we continue to see growth among Chinese businesses.”

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China and the Philippines are launching a peso-renminbi trading platform in November, following an MOU signed on October 30 between the Bank of China Manila branch and 13 Philippine banks.

The platform, called Philippine Renminbi (RMB) Trading Community, will enable more convenient renminbi clearing and settling services for Philippine firms to enter China’s market.

The new platform will also allow direct conversions between renminbi and peso. As a result, business transactions between the two countries no longer need to be first priced using third currencies, such as the US dollar.

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China’s factory output growth slowed for the second consecutive month in October, according to the Purchasing Managers Index (PMI) released by Caixin and IHS Markit on Wednesday. The manufacturing PMI fell from 50.8 in September to 50.2 this month. Non-manufacturing PMI fell from 54.9 in September to 53.9.

By enterprise size, manufacturing PMI for medium-sized and large enterprises fell 1.0 and 0.5 points respectively.

Ting Lu, an analyst at Nomura, noted that the non-manufacturing PMI has also fallen but remains well above the manufacturing PMI, suggesting that China’s primary growth driver continues to shift towards the service sector. 

Maggie Wei, a China economist at Goldman Sachs (Asia), wrote in an October 31 note that excluding readings in the months of Chinese New Year, most sub-indexes fell back to levels last seen in mid-early 2016.

“We continue to expect accommodative policy stance to support overall growth (in particular we expect one more RRR cut before the end of this year),” Wei added.

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In October, the qualified foreign institutional investor (QFII) scheme totalled $100.26bn, an increase of $100m from September.  

The outstanding amount of the RMB QFII program was Rmb642.7bn as of October 30. Schroder Investment Management (Hong Kong) was the sole new recipient of quotas, having topped its existing allocation with another Rmb2.5bn in quota to reach Rmb3.5bn.

In September, net inflows to Chinese onshore funds from Hong Kong investors under the Mutual Recognition of Funds scheme reached Rmb479m, a Rmb16.5m increase from August. Meanwhile, net sales of Hong Kong funds in the mainland reached Rmb9.02bn, with net outflows of Rmb141.4m in the month of September.


  • By Rebecca Feng
  • 02 Nov 2018

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 China Merchants Securities Co 16.70
2 Industrial and Commercial Bank of China (ICBC) 14.38
3 CITIC Securities 10.44
4 Agricultural Bank of China (ABC) 9.08
5 China CITIC Bank Corp 8.17

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 24-Oct-18 China Gas Holdings China 2,000
2 15-Oct-18 China Power International Development China 2,000
3 11-Oct-18 Global Logistic Properties via Iowa China Offshore Holdings Hong Kong 1,200
4 28-Sep-18 Trafigura Singapore 700
5 17-Sep-18 The Wharf (Holdings) Hong Kong 2,000

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 33.31
2 HSBC 20.53
3 Societe Generale 4.21
4 Bank of Taiwan 3.60
4 Cathay United Bank 3.60

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 19-Sep-18 Agricultural Development Bank of China (ADBC) China 1,200
2 17-Sep-18 Hitachi Capital (UK) United Kingdom 600
3 13-Sep-18 CIFI Holdings China 1,000
4 05-Sep-18 Daimler Germany 1,000
5 03-Sep-18 First Abu Dhabi Bank PJSC United Arab Emirates 650