MSCI Adds 14 China ADRs to Top Indexes as Xi Focuses on Tech

  • Alibaba, Baidu to be included in MSCI Emerging Markets Index
  • Changes are part of index provider's semi-annual review

MSCI Inc. said it will add 14 U.S.-traded Chinese stocks to its largest indexes, giving a boost to some of the country’s biggest technology companies as President Xi Jinping moves to increase their role in the nation’s economic growth.

The American depositary receipts of companies from online retailer Alibaba Group Holding Ltd. to search engine Baidu Inc. will be listed in gauges including the MSCI China Index and MSCI Emerging Markets Index, the New York-based company said in a statement Thursday. In all, 21 foreign-listed stocks from markets including Hong Kong, Israel and the Netherlands are being added to the major benchmark gauges, according to the statement. Forty-five overseas-traded companies will be in small-cap indexes.

With an estimated $9.5 trillion of assets benchmarked to MSCI’s indexes, stocks typically rise when they are added to them as investors adjust their portfolios to reflect the changes. For Chinese equities, the move will affect investors with at least $400 billion of holdings and give the country a higher concentration of software companies than any other MSCI gauge worldwide, Goldman Sachs Group Inc. estimated last month.

‘Pretty Dramatic’

“The change is pretty dramatic,” Gabriel Wallach, who invests in Chinese growth stocks as founder and portfolio manager at North Grove Capital LLC, said by phone before the announcement. “The investor base might broaden out a little bit. It’ll be refreshing to see a more EM-institutional, or just an institutional investor base take stakes in these companies.”

Technology companies have driven a 29 percent gain in a Bloomberg gauge of U.S.-traded Chinese stocks from this year’s low in September. President Xi’s government is trying to increase their role in the nation’s economic growth while reducing the dependence on state-run industrial and financial firms.

MSCI made the changes as part of its semi-annual equity index review. The addition of foreign-listed stocks was part of a shift to broaden the coverage of the gauges as companies trade overseas and not in their home markets. Alibaba, which debuted last year in the U.S. with a record initial public offering, is one example. The new securities will be added after the close of trading on Nov. 30.

Small Cap

ADRs being added to the MSCI China Small Cap Index include Sina Corp., Changyou.com Ltd., Bitauto Holdings Ltd., Cheetah Mobile Inc. and Renren Inc.

Foreign-listed stocks are being added to indexes covering global markets as well as gauges for individual gauges for Hong Kong, Israel and the Netherlands, MSCI said. 

While Chinese ADRs are being added to the biggest MSCI gauges, mainland-traded shares are still being left out of them. The index provider said in June that it had decided to hold off on including them because of their inaccessibility to foreign investors.

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