Huge Bets Being Made on Chinese Stock Market

Huge Bets Being Made on Chinese Stock Market

$GS, $MS

FLASH: There is Big money heading to Chinese stocks

After MSCI Inc. announced Thursday that it would boost the weighting of China’s onshore shares in its emerging market index, more than $46-B is set to pour in from funds that track the gauge.

Chinese equities climbed to the highest since June Friday, leaving them up 20% this year after gains spurred by speculation the government will take steps to bolster the economy.

Large benchmarks wield an increasing amount of power over investors’ dollars as passive, index-tracking products such as exchange-traded funds gain in popularity.

More than $1.8-T of investments followed MSCI’s emerging-markets index as of June, but Goldman Sachs Group Inc. estimates that $70-B could ultimately flow into China as active managers and other gauges follow MSCI’s lead on asset allocation.

China-focused ETFs listed in the US rose Friday, with the Xtrackers Harvest CSI 300 China A-Shares ETF adding 2.4%. The fund absorbed almost $200-M in inflows last month, the most since August.

But while Chinese stocks rally, markets in southeast Asia could lose out amid the greater allocation to China, according to Morgan Stanley.

MSCI will increase China’s weighting to 3.3% from 0.7% in 3 steps between May and November, the indexer said Thursday.

And while that is a big gainer, if the emerging-market gauge was to go by market-capitalization alone, Chinese stocks would account for more than 40%. MSCI Chief Executive Officer said the nation could win a greater allocation if the economy continues to open up to the outside world.

Have a terrific weekend.

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