Reuters
Asian stock markets finished broadly lower Tuesday as tech stocks struggled throughout the region.
Tech-heavy indexes in South Korea and Taiwan each dropped by 0.7%. Hong Kong’s Hang Seng index slid 1.2%, with index heavyweight and internet giant Tencent Holdings Ltd. losing 3.4%.
In Tokyo, the Nikkei Average slipped 0.2%.
Tuesday’s big theme: China’s markets are opening up to foreign investor
Big index provider MSCI Inc. unveiled the list of 234 Chinese-listed stocks that will be included in its broad MSCI Emerging Market index and other benchmarks.
That sounds like a lot, but the actual impact will initially be quite small. These stocks will hold a 0.4% weighting in the EM index, a tiny amount that’s expected to grow in the coming years. Inclusion is set to formally take place June 1.
This matters because many foreign investors who put their money in index funds will now soon have exposure to Chinese stocks. Over the past few years, investors in the past few years have had the ability to actively buy and sell mainland-listed shares by way of trading links through Hong Kong.
Over $6 billion flowed into mainland-listed Chinese stocks in April through these so-called Stock Connect programs in Shanghai and Shenzhen, the most ever in a given month, according to financial-data provider Wind Information Co.
But starting June 1, investors in passive funds like exchange traded funds, who might never have considered purchasing Chinese stocks, could find that their portfolios will have a little exposure to mainland Chinese stocks.
Market reaction
“This is just the beginning,” Frederic Neumann, co-head of Asian economic research at HSBC, said Tuesday at the Asia Securities Industry & Financial Markets Association conference in Hong Kong. “There is a strong desire among Chinese authorities to bring in foreign capital...and bring in financial discipline in China.”
But investors remain skeptical.
At the ASIFMA conference, a poll asked when foreign participation in Chinese markets will be as open as it is in New York or Hong Kong. About half of the nearly 300 respondents said within 20 years, a quarter said 10 years, and 21% chose “never, who are you kidding?” The fastest option—“in five years’ time”—received the fewest amount of responses, with just 7%.
Elsewhere, the U.S. and China are closing in on a deal on Chinese telecom-equipment giant ZTE Corp. Economic data released Tuesday in China offered mixed results about business activity. Industrial output quickened last month from a year earlier, but investment and retail sales slowed.
Crude oil prices hovered around 3½-year highs and the 10-year Treasury yield eclipsed the closely watched 3% level.