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HKEX Markets Operate Smoothly On Day of Milestone Index Rebalancing

Market Operations
Mutual Market
31 May 2018

  • MSCI adds A-share stocks to key benchmarks in latest rebalancing, while net weighting of Hong Kong-listed shares to rise
  • A-share inclusion a defining moment in China’s capital market internationalisation, made possible with Stock Connect’s development
  • HKEX records 60 per cent jump in the number of Special Segregated Accounts compared with March, reflecting institutional investors’ wide acceptance and use of HKEX’s enhancement facility to Stock Connect

 

Hong Kong Exchanges and Clearing Limited (HKEX) markets operated smoothly today (Thursday) as a milestone index rebalancing was conducted by global index compiler MSCI, which for the first time is including A shares to some of its key benchmarks, while increasing the net weighting of Hong Kong-listed stocks in its indices.

The index rebalancing contributed to the increased equity market turnover in Hong Kong and higher Stock Connect volumes.

While certain Hong Kong-listed shares saw a significant increase in trading volumes, especially towards the end of today’s afternoon session, HKEX’s securities and derivatives markets operated as usual, with trading conducted in a fair and orderly manner.

HKEX’s securities market turnover totalled $205.7 billion today, of which $96.2 billion, or 46.8 per cent, was transacted in the Closing Auction Session (CAS), the highest CAS turnover since its launch in 2016.

Various institutional investors that use MSCI indices as performance indicators would have adjusted their portfolios today, as the rebalancing would be effective at Friday’s market open, and the resulting boost in volumes and price movements were not unusual.  Index providers typically adjust or rebalance their indices periodically to reflect underlying market developments.

With MSCI adding A shares to its All Country World Index, China and Emerging Markets indices, many institutional investors tracking the benchmarks likely bought A shares via the Stock Connect scheme today to adjust their portfolios.

As a result, Shanghai and Shenzhen Connect’s combined Northbound trading recorded buy and sell turnover of RMB34.69 billion today, up 57 per cent from Wednesday’s session.  The Northbound daily buy and sell turnover is the highest since Stock Connect’s launch in 2014.

“MSCI’s inclusion of A shares to its indices is a defining moment in the internationalisation of Mainland China’s capital market, but this is just the beginning,” said HKEX Chief Executive Charles Li.  “We at HKEX are honoured to have played a part in making this possible through the development and continuous refinement of Stock Connect, our landmark mutual market access programme.”

“We are committed to working with the Shanghai and Shenzhen stock exchanges, as well as our regulators, to ensure that Stock Connect will continue to be effective and operate smoothly,” said Mr Li.

As institutional investors prepared for MSCI’s A-share inclusion, HKEX’s securities clearing house saw a significant increase in the number of Special Segregated Accounts (SPSAs), which rose 60 per cent from March to last Friday, when there were 4,800 accounts, reflecting wide acceptance and adoption of the HKEX facility.

HKEX’s rollout of its SPSA services in 2015 enabled many institutional investors to participate in Northbound trading of Stock Connect by addressing concerns they had raised.  The feature has helped investors minimise counterparty risk in A-share settlement, as well as maintain compliance with asset segregation and safe keeping requirements for institutional funds.

Under Stock Connect, A shares must be available for pre-trade checking before they can be sold.  With an SPSA, investors can satisfy that requirement without having to transfer their A shares to the executing brokers prior to their sale.

 

Ends

Updated 03 Dec 2018

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