Latest MSCI rebalancing to impact fund flows

The latest round of MSCI index rebalancing could lead to more significant fund flows as stocks are added and deleted amid an already volatile market.
Index provider MSCI Barra has announced changes to the MSCI Global Investable Market Indices, which are expected to have a significant impact on fund flows. An estimated $3 trillion is benchmarked against MSCI indexes.

The recent announcement includes changes to the MSCI Global Standard and MSCI Global Small Cap Indices as well as the MSCI Large Cap, MSCI Mid Cap, and MSCI Investable Market Indices. The changes, which are the result of a semi-annual review, will be made at the close of trading on November 25.

Passive fund managers tend to mimic changes in benchmark indexes in their own portfolios. Active fund managers tend to act differently, with most having a tendency to buy stocks added to indexes and dump those that have been deleted. The latest round of index changes are particularly significant because they are happening amid the global financial crisis, which could lead to an exaggerated effect in terms of fund flows into the added stocks and out of the deleted stocks.

In Hong Kong, the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing Limited (HKEx) issued a joint statement reminding investors of possible increases in securities trading activities and the risk of unusual price movements in relation to the index rebalancing.

"The SFC and HKEx are aware of possible increases in trading activities and unusual price movements around the market close during index rebalancing events, period ends and expiration of derivatives contracts," the statement says. "Exchange participants and investors should be mindful of these market events when making investment decisions. The SFC and HKEx will closely monitor the trading activities during these times and conduct thorough reviews should any irregularities be detected."

There are no additions to the MSCI Hong Kong Index, but Shun Tak Holdings, CC Land Holdings and Lee & Man Paper Manufacturing were deleted.

In other country indexes in Asia, additions include: China Huiyan Juice Group, Huabao International Holdings, Want Want China Holdings, Tsingtao Brewery, China Dongxiang, and Weichai Power in China; Sesa Goa in India; Lippo Karawaci in Indonesia; Yuhan Corporation and Korea Express in Korea; and Formosa Technology in Taiwan.

Deletions in country indexes in Asia include: Venture Corporation, Capitacommercial Trust, Keppel Land, and Yanlord Land in Singapore; Guangzhou Investment, China Southern Airlines, Citic Resources Holdings, Hopson Development Holdings, Nine Dragons paper, Hidili Industry International, China Eastern Airlines, Shougang Concord, and Kwg Property in China; Indiabulls Real Estate, Ultratech Cement, and Indiabulls Financial in India; Indah Kiat Pulp & Paper and Truba Alam Manunggal in Indonesia; Tong Yang Securities in Korea; Megaworld in the Philippines; Yageo Corporation, Wafer Works Corporation, D-Link Corporation, Pan-International, Winbond Electronics, Firich Enterprises, Wintek, Mosel Vitelic, Zinwell Corporation, and VIA Technologies in Taiwan; and Siam Cement and Central Pattana in Thailand.

There are no additions and deletions in country indexes in Malaysia and Pakistan.

Within the regional MSCI All Country Asia ex-Japan Index, the top 10 additions are Yuhan Corporation, China Huiyuan Juice Group, Korea Express, Lippo Karawaci, Huabao International Holdings, Want Want China, Tsingtao Brewery, Sesa Goa, China Dongxiang, and Weichai Power. The top 10 deletions in that index are Venture Corporation, Capitacommerical Trust, Keppel land, Indiabulls Real Estate, Yageo Corporation, Wafer Works Corporation, D-Link Corporation, Siam Cement, Tong Yang Securities, and Pan-International.

The semi-annual index review is aimed at systematically reassessing indexes. It involves a comprehensive review of the size-segment indices, including a review of the segment number of companies and the market size-segment cut-offs, and the assignment of companies to the size-segments, taking into account buffer zones.

There will be 77 securities added to and 131 securities deleted from the MSCI Global Standard Indices. The three largest additions to the MSCI World Index are Tenaris (Italy), Stericycle (US) and Imclone Systems (US).

The three largest additions to the MSCI Emerging Market Index are Growthpoint Property (South Africa), Yuhan Corporation (Korea) and China Huiyuan Juice Group (China).

There will be 429 securities added to and 400 securities deleted from the MSCI Global Small Cap Indices.

Overall, there will be 340 additions to and 375 deletions from the MSCI Global Investable Market Indices.

There will be 29 additions to and 19 deletions from the MSCI Frontier Markets Indices.

The MSCI Lithuania and MSCI Serbia Indices, launched in May 2008 as stand-alone country indices, will be added to the MSCI Frontier Markets Index.

Jordan will simultaneously be removed from the MSCI Emerging Markets Index and added to the MSCI Frontier Markets Index.

MSCI Barra also introduces new stand-alone country indices for Botswana, Ghana, Jamaica and Trinidad & Tobago. The addition of these countries to the MSCI Frontier Markets Index at the next semi-annual index review is under consideration.
¬ Haymarket Media Limited. All rights reserved.