Liquor Titans to Coal Miners: the Chinese Stocks in MSCI's Club

  • Index compiler finally agrees to include mainland equities
  • Baijiu maker Moutai admitted with appliance company Midea

MSCI's Fernandez Saw Strong Support for China Inclusion

China’s domestic stocks have finally made the grade, gaining admittance to MSCI Inc.’s influential suite of indexes after a run of rejections.

The index compiler surprised some by giving mainland equities the thumbs up early Wednesday Hong Kong time, rubber stamping a larger-than-expected list of 222 companies for inclusion, among them about 59 that are listed both onshore and off. Admittance into the MSCI club opens mainland shares up to a new universe of investors -- from mutual to pension funds -- who track the New York-based company’s benchmarks around the world.

Read more here about the market reaction to MSCI’s decision.

So what will these fund managers be getting? Here’s a look at some of the stocks that were included:

The Outperformers

  • Kweichow Moutai Co.: Nipping at the heels of Diageo Plc (owner of Johnnie Walker) for the title of the world’s most valuable liquor distiller, this company makes the king of China’s baijiu, a tipple that is the drink of choice for the country’s leaders. Moutai has surged 41 percent this year and joins fellow alcohol purveyors Wuliangye Yibin Co. and Tsingtao Brewery Co. -- which is also traded in Hong Kong -- in the MSCI fold.
  • Midea Group Co. is the world’s largest consumer appliances maker after a string of overseas acquisitions, including Electrolux Group’s North American vacuum cleaner brand Eureka. Its Shenzhen-listed shares are up 48 percent this year amid rising sales to trade at a record high. It’s joined in the MSCI list by ascendant Chinese dairy producer Inner Mongolia Yili Industrial Group Co., Asia’s largest dairy producer by market capitalization according to Bloomberg Intelligence.
  • Zhejiang Dahua Technology Co. -- a maker of surveillance equipment in the picturesque southern Chinese city of Hangzhou -- is an analyst favorite. The company is up 66 percent in Shenzhen this year and has 15 buy recommendations to zero sells even as it trades at a record high.
  • SAIC Motor Corp. is China’s biggest carmaker by sales. The shares are a bet on the new-energy vehicle market, with SAIC announcing earlier this month that it would invest 10 billion yuan ($1.5 billion) in manufacturing batteries for electric cars. It’s climbed 26 percent this year.
  • Hainan Airlines Co.: Controlled by billionaire Chen Feng’s HNA Group, the carrier is aiming to compete with the country’s bigger airlines and seems to be gaining a foothold -- its revenue climbed 44 percent in the first quarter, the most since 2010. Hainan is down in 2017 but is cheaper than its competitors, trading at an 18 percent discount to mainland-traded shares of state-backed Air China Ltd., which were also included.

Read more about how MSCI’s latest list of A shares differs from those it named after its previous proposal.

The Wild Cards

  • Shandong Gold Mining Co.: The precious metals producer has slumped 21 percent this year as investors pivot away from equities associated with China’s old economic growth drivers. The company has recently sought loans to fund the purchase of a gold mine in Argentina. Coal miner Shanxi Xishan Coal & Electricity Power Co. was also admitted, along with electricity company Shenergy Co.
  • Gemdale Corp. is a property developer based in the dynamic southern Chinese city of Shenzhen. Its shares are down 17 percent this year, with losses steepening amid the saga with Anbang Insurance Group Co. Anbang -- reported to be the subject of a government probe -- is the second-biggest shareholder in Gemdale, with a 20.4 percent stake, according to data compiled by Bloomberg.  
  • Financial Street Holdings Co. is another Anbang-linked real estate company up for contention with MSCI. Anbang owns 14 percent of the Beijing-based firm, Bloomberg data shows, and its shares have fallen more than 6 percent over the past week-and-a-half. Still, analysts covering Financial Street overwhelmingly rate the stock a buy. 
  • Beijing Capital Co.: The state-controlled infrastructure manager has soared 75 percent in 2017, benefiting earlier in the year from the boom in equities thought to be linked to China’s planned new economic zone southwest of the capital. The meteoric gains have, however, spurred HSBC and Credit Suisse to rate the shares a sell.
  • Banks: While up 4.8 percent as a group this year, financial stocks are the second-worst performers on China’s CSI 300 Index of shares listed in Shanghai or Shenzhen. A swathe of mainland bank equities were admitted by MSCI, including regional lenders Bank of Beijing Co. and Bank of Ningbo Co. China has turned up the heat on the financial sector this year, pushing forward with deleveraging and tightening supervision of banks.

Click here for the full list of Chinese stocks to be included, on MSCI’s website.

— With assistance by Emma O'Brien

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