中信证券_20181012_Quantitative+Analysis+of+Hotspot+across+the+Market（5）：Progress+of+international+stock+indices’inclusion+of+A+shares.pdf

Please read the disclaimer at the end of the report Securities Research Report/Quantitative Strategy&Assets Allocation/Quantitative Strategy Quantitative Analysis of Hotspot across the Market(5):Progress of international stock indices inclusion of A shares and its marginal influence 12 Oct 2018 CITICS Research GU Shengxi Tel:010-60836748 Email: Practicing license:S1010517110001 LIU Fang Tel:010-60836736 Email: Practicing license:S1010513080004 ZHAO Wenrong Tel:010-60836759 Email: Practicing license:S1010512070002 WANG Zhaoyu Tel:021-20262110 Email: Practicing license:S1010514080008 LI Haiqiang Tel:0755-23835401 Email: Practicing license:S1010512010001 Investment Highlights:Investment focus:Implications of the inclusion of A shares in major international stock indices.1)A shares have become an important allocation for global investors.Mainland China has the third-largest stock market by market cap.At a 100%full inclusion factor,A shares are expected to represent an aggregate weight of 17%in MSCI indices.2)From a long-term perspective,A share allocation can help expand the efficient frontier of investments for foreign investors.Chinas A shares have relatively low correlation with major developed country/EM indices.According to MSCI research,assuming portfolio volatility is fixed,a 5%inclusion of A shares will boost expected returns by 20bps and a 100%inclusion will boost expected returns by 80-100bps.3)Major international stock index providers moves to include A shares in their indices are an indication of overseas institutional investors views on asset allocation.The MSCI inclusion,the result of voting by global mainstream institutional investors,shows their recognition of A shares as worthy long-term investments.For foreign investors,now is a good time to buy on dips.In this note,we have carried out quantitative analysis of major milestones in future for inclusion of A shares into relevant international stock indices to figure out the impact on relevant sectors and those A shares by looking at those A shares micro data.Timetable for foreign allocation to A shares:2Q2019,3Q2019 and 2Q2020 are important points in time.1)Both MSCI and FTSE Russell plan a progressive three-step inclusion of A shares from 3Q2018 to 2Q2020.In addition,MSCI has proposed adding Chinese mid-caps and shares listed on the ChiNext board.2)The inclusion of A shares in FTSE Russell/MSCI indices is expected to have attracted Rmb68bn/110bn,Rmb200bn/450bn and Rmb330bn/540bn in international inflows by 2Q2019,3Q2019 and 2Q2020,respectively.3)3Q2019 will see the highest incremental inflows,at Rmb470bn.Marginal impact of incremental inflows:1)We expect Rmb870bn international inflows as of 2Q2020.We estimate that Kweichow Moutai,Ping An Insurance(Group)Company of China,Industrial and Commercial Bank of China,China Merchants Bank and Agricultural Bank of China will be the top five beneficiaries.2)By stock,the impact will be heavy on Yangtze Power,Shenwan Hongyuan,Century Huatong,Haitian Flavouring and Food and Shanghai Pudong Development Bank.A large portion of the heavily impacted stocks will be concentrated in the power and banking sectors.3)By sector,the impact will be great for small-cap sectors,such as agriculture,retail,textile&apparel,light industry and steel.Quantitative Analysis of Hotspot across the Market(5):Please read the disclaimer at the end of the report Inclusion potential for individual stocks:The number of A shares included in MSCI indices is set to increase to 434 by 1Q2020,including 31 new ChiNext stocks and 168 new mid caps.This will bring incremental inflows of Rmb90bn.For specific targets,please refer to the table in the body of the report.Conclusion and investment advice:The inclusion of Chinese A shares in international indices will attract capital inflow from long term overseas investors into relevant A shares,helping them attract more attention as long-term allocation targets.1)We estimate that the inclusion of A shares in FTSE Russell/MSCI indices will have attracted a combined Rmb870bn in international inflows by 2Q2020.We expect 3Q2019 to see the highest incremental inflows,at Rmb470bn.2)By stock,the impact will be felt most by Yangtze Power,Shenwan Hongyuan,Century Huatong,Haitian Flavouring and Food and Shanghai Pudong Development Bank.A large portion of the heavily impacted stocks will be concentrated in the power and banking sectors.3)We suggest focusing on the new constituents to be added to international indices.4)The MSCI inclusion,the result of voting by global mainstream institutional investors,indicates their recognition of A shares as worthy investments.As the inclusion progresses,relevant stocks will attract more attention as long-term allocation targets.Potential risks:1)slower than expected progress in the A-share inclusion;2)changes in the northbound trading link,QFII,RQFII and other systems;and 3)changes to the composition and weighting of constituents in response to stock fundamental changes.Analyst Certification:The analysts primarily responsible for the preparation of all or part of the research report contained herein hereby certify that:(i)the views expressed in this research report accurately reflect the personal views of each such analyst about the subject securities and issuers;and(ii)no part of the analysts compensation was,is,or will be directly or indirectly,related to the specific recommendations or views expressed in this research report.Investment rating system Rating standard for Investment Recommendations Investment ratings involved in investment advice contained in this report are divided into stock rating and sector rating(unless stated otherwise).Rating standard is based on the performance relative to the market in 6 to 12 months from the report distribution date,i.e.Performance of company stock price(or sector index)over the 6-to-12-month period from distribution date is benchmarked against the change in market representative index over the same period.CSI 300 Index serves as the benchmark index for the A-share market;the NEEQ Component Index(stocks subject to negotiated transfer)or the NEEQ Market Making Index(stocks subject to market making)is the benchmark index for the NEEQ board;MSCI-China Index is the benchmark index for Hong Kong market;and NASDAQ Composite Index or Standard&Poors 500 Index serves as the benchmark index for U.S.market.Ratings Description Stock ratings BUY Increase relative to market representative index over 20%OVERWEIGHT Increase relative to market representative index between 5%and 20%HOLD Increase relative to market representative index between-10%and 5%SELL Decrease relative to market representative index over 10%Industry ratings OUTPERFORM Increase relative to market representative index over10%NEUTRAL Increase relative to market representative index between-10%and 10%UNDERPERFORM Decrease relative to market representative index over 10%Other Disclosures This research report has been prepared by 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