Investment

MSCI urges China to ease ownership limits after dropping stock

MSCI/Bloomberg

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New York-based MSCI said it will remove Han’s Laser Technology Industry Group Company from its China indexes after Friday’s close because the stock had reached the 28 per cent ownership limit that halted buy orders.

Thursday 07, March 2019

(Bloomberg) --MSCI said that China should consider easing foreign-ownership restrictions in its stock market to prevent more companies from being dropped from its widely-followed benchmarks.

Midea Group Company, which is also close to the ceiling allowed for overseas holdings, will see its weight adjusted due to concern over accessibility effective from 11 March, the index provider said. The two stocks dropped at least 3.2 per cent.

The cap on foreign ownership has been set at a relatively low level, said Chin-ping Chia, head of Asia Pacific research at MSCI. "The regulators should explore the possibility to further boost that limit, if they want more participation of international investors in the market," he said.

MSCI’s decision on Han’s Laser comes as the index compiler prepares to increase the weighting of China-listed shares in benchmark indexes tracked by global investors after first including them in 2018. The expansion will occur in three steps this year beginning in May, with the weighting of A shares ultimately rising to 3.3 per cent of the MSCI Emerging Markets Index in November from 0.72 per cent.

"If foreigners cannot buy certain stocks, that creates a liquidity issue and distorts the indexes," said Hao Hong, Chief Strategist with Bocom International Holdings Company. "It is something that is ought to be changed, and the time is ripe for that."

Han’s Laser, a Chinese maker of laser tools that supplies Apple, had northbound buying halted on because its stock crossed the threshold. The limit, imposed by Shenzhen and Shanghai’s exchange operators, takes into account shares held through qualified investor quotas as well as the stock connect link with Hong Kong. Only Shanghai International Airport Company had previously hit the foreign ownership cap in 2015, before MSCI’s inclusion of A shares.

Chia said Han’s Laser is likely to be out of its indexes for at least a year.

"We normally need 12 months to monitor if foreign room on a stock is improved and reconsider it for inclusion," he said. "If China raises the foreign investment limit during the monitoring period, we might make it an event-related exception and reevaluate accordingly."

Buy orders via stock trading links with Hong Kong will be halted if foreign holdings in a given China stock reach 28 per cent, according to rules posted on the Hong Kong Stock Exchange’s website. Buying can resume only when the figure falls to 26 per cent.

 

TAGS : Han’s Laser Technology Industry Group Company, MSCI Index, Hong Kong Stock Exchange, Shenzhen, Shanghai

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