The CSI 300 has dropped 16 per cent this year, versus a 2.2 per cent gain in the MSCI Emerging Markets Index.
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Following that decision, Chinese market regulators have addressed many of MSCI’s concerns, expanding its Qualified Foreign Institutional Investor (QFII) scheme and clarifying foreign ownership rights, allowing the MSCI to reconsider inclusion of mainland shares in its benchmark indices in June.
Shares rose across the board, with financial, IT and consumer shares, leading the gains.
The benchmark Shanghai Composite Index edged up 0.18 percent, or 5.14 points, to 2,826.19 while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, rose 0.12 percent, or 2.21 points, to 1,809.25. Linked to the above, Bloomberg reported that “short interest” in one of the biggest Hong Kong exchange traded funds had jumped by a factor of five, reaching its highest level in a year.
Some global traders with negative views on Chinese stocks have shifted to offshore markets to bet against them.
The June futures contracts CIFM6 on China’s blue-chip CSI300 index plunged the 10 percent daily limit at 10:42 local time, but recovered all its losses within that minute in high volume.
Elsewhere in Asia, Japan’s Nikkei Stock Average NIK, +0.98% was up 0.7%, Korea’s Kospi SEU, +0.83% was up 0.5%, and Hong Kong’s Hang Seng Index HSI, +1.46% was up 1.2%.
But inclusion is unlikely to trigger an avalanche of capital flows into China.
Last November, foreign investors sold off Korean shares to the tune of 538.2 billion won ($451.6 million) when the MSCI included the first batch of Chinese ADRs into the EM index.
“It looks like a fat finger”, Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co, said by phone.
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Wang added that the incident also underscored the fact that there is not much liquidity in the futures market after China imposed trading restrictions, making the contract prices vulnerable to a relatively small number of erratic trades.
