Dingfeng Weekly Report | Spanning history, moving toward value
Last week's review:
The Shanghai Composite Index (1.11%), Shenzhen Component Index (1.72%), SME Board Index (1.77%) and GEM Board Index (-0.14%), the market returned to the broader market style, and the financial and consumer sectors led the market.
Last week's hotspots:
1. A shares included in the MSCI index
At 4 a.m. on June 21, 2017, MSCI announced that it will include Chinese A-shares in the MSCI Emerging Markets Index and the MSCI ACWI Global Index from June 2018. The MSCI plan initially included 222 large-cap A shares. Based on the 5% inclusion factor, these A-shares account for approximately 0.73% of the MSCI Emerging Markets Index. MSCI plans to implement this initial incorporation plan in two steps to buffer the current daily limit limits of Shanghai Stock Exchange and Shenzhen Stock Exchange. The first step is scheduled to be implemented during the semi-annual index review in May 2018; the second step will be implemented during the index review in the August quarter of 2018. Since 2013, after three failed customs clearances, A shares have been recognized by international investors.
The inclusion of A-shares in the MSCI Index will further optimize investor structure. The index funds and actively managed funds that use the MSCI index as a benchmark have increased, bringing approximately $17 billion in incremental funds to A shares. Compared with A-share public funds and insurance funds, overseas funds place more emphasis on companies with low valuations, high dividends, and performance. The value investment style presented by A-shares since 2016 will be further strengthened.
2. Tesla "settled in" China is imperative
On June 20, 2017, according to open information in online media, Tesla has reached an agreement on achieving localized production in China. Tesla is a leader in the global luxury smart electric vehicle industry. Its current goal is to achieve an annual output of 500,000 vehicles in 2018. As one of Tesla’s most important markets in the world, Tesla “settles” in China, imperative, and brings huge investment opportunities for Tesla’s domestic industry chain.
In the short term, the market capital and sentiment have improved, and the highly resilient valuation has been the main theme of the week. The market style has grown from a large market value to a small market value, and from financial consumption to a cyclical growth. However, the cyclical downturn, credit crunch, and policy strengthening faced by the medium-term market are still definitive directions. Especially in terms of short-term policies, the "Guidelines for the implementation of appropriate management of investors in securities trading institutions (draft for comment)" will further guide market participants toward rational value investing, undoubtedly once again clarifying the direction of supervision.
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