Stocks wait on MSCI China call, rand steadies after swoon


China stocks barely moved on Tuesday morning as investors awaited a decision by US index provider MSCI on whether to add mainland shares to its Emerging Markets Index.

"Even though the Federal Reserve is about to shrink its balance sheet, possibly as soon as in September, U.S. bond yields are kept at low levels, which are very comfortable for stocks", said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities."Trade volume is light and whether the market continues to rise depends on whether large cap tech shares continue to rebound", he also said.

Chinese stocks closed higher Monday led by heavyweights and easing liquidity conditions.

"While the stock connect programs will provide worldwide investors direct access to most companies traded in the Chinese mainland, the bond connect program can enhance the liquidity and pricing efficiency of Chinese bonds in the market", said Ulrich. It is the leading index to gain exposure to potentially fast growing companies, but in volatile economies such as Brazil, India, Turkey and China.

According to the Thomson Reuters Lipper database, all funds investing in global emerging markets hold a total of US$835 billion in assets under management.

"This represents 0.8 percent of A-shares' free-float market capitalization and 2.6 percent of its daily trading turnover", he added.

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Chinese stock market will be boosted if A shares are included in the MSCI Emerging Market Index later this year.

But a key sticking point is the insistence on control.

If China A shares were to be included, consumer and real estate stocks in particular would see their weighting increase - at the expense of financials - under MSCI's new methodology unveiled in March, which will cut the number of constituents to 169 from 448.

"The probability of the inclusion of A-shares in MSCI has increased this year, although initial weighting will likely be small", Ulrich said.

By opening up the mainland market through the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect past year, the central government has gradually eased capital restrictions and investment quotas.