Alibaba & Baidu inclusion on MSCI indices

19 October, AtoZForex – Flood of institutional money could flow into stocks like Alibaba and Baidu. In coming weeks, index provider MSCI will announce a basket of Chinese ADRs to be included into MSCI China and MSCI Emerging Index. The inclusion of ADRs of Alibaba, Baidu Inc. and Inc. in the MSCI Emerging Markets Index would account for over 2 percent of the benchmark alone.

Markets react

Meanwhile, it is expected that, Alibaba, Baidu inclusion on MSCI indices will boost the gauge of the most-traded Chinese stocks in the U.S. Having already closed at the highest level last week since Aug. 19. Alibaba shares also rallied 2.3 percent to $70.30 last week, a level the shares haven’t closed at since Aug. 27 with further strength expected. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF rose 3.7 percent to the highest since Aug. 21 on Monday. The Market Vectors ChinaAMC A-Share ETF increased 4.1 percent, also reaching a seven-week high. The Yuan strengthened 0.34 percent, following the PBOC’s raise of its fixing and signaled support for the currency.

PBOC policy expectation

This renewed strength in Chinese financial instruments is also supported by speculation that policy makers will introduce more measures to boost growth in the world’s second-largest economy and stabilize mainland markets. The Shanghai Composite Index, which rose 3.3 percent on expectation of further reduction in interest rate or reserve-requirement ratios by the People’s Bank of China as economic reports this week will likely show more disturbing metrics for the nation. The data this week will likely show slowing exports and decelerating inflation. Already, the PBOC has reserve requirement ratio thrice this year, alongside a five time rate cut since November as China’s economy’s is set to post its weakest annual expansion in over two decades.

Chinese ETFs rebound

Recovering from a 45 percent meltdown between June and August as global markets plunged, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF and the Market Vectors ChinaAMC A-Share ETF have awaken. They have rallied over 16 percent since their August lows on investor optimism that a $5 trillion rout in mainland markets is over as the government intervened in trading and introduced targeted support for important industries to bolster growth.

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