FTSE’s rebalancing of China stock indexes to spur US$850 million fund flows, Goldman says

FTSE Russell's quarterly review of the FTSE China 50 and A50 indexes is expected to result in over US$850 million in capital flows, according to Goldman Sachs. Sectors like metals, pharmaceuticals, and capital goods will see passive inflows, while consumer retailers and internet companies may face outflows. Changes include adding CATL and Jiangsu Hengrui Pharmaceuticals to the China 50 index. The rebalancing will be effective after December 19, with the FTSE China 50 and A50 indexes showing significant gains this year.

A recent quarterly review by FTSE Russell of two indexes tracking Chinese stocks may result in more than US$850 million of capital flows, with sectors from metal producers to healthcare attracting passive investments, according to Goldman Sachs.\nCapital goods, metal and pharmaceutical companies would each attract between US$125 million and US$300 million in passive inflows after the quarterly rebalancing of the FTSE China 50 Index and the FTSE China A50 Index on Wednesday, Goldman analysts led by Alvin So and Timothy Moe said in a report on Thursday.\nMeanwhile, consumer retailers, carmakers and internet companies were expected to bear the brunt of fund outflows, with each seeing an exodus ranging from US$100 million to US$160 million, according to the report.\nThe estimated fund flows took into account not only the impact of the rebalancing on FTSE’s two China stock-linked indexes but also potential flows from other members of the FTSE Global Equity Index Series, it said.\nFTSE added Contemporary Amperex Technology (CATL), Jiangsu Hengrui Pharmaceuticals and aluminium maker China Hongqiao Group to its China 50 index, while removing electric-vehicle maker Li Auto, Great Wall Motor and brokerage CSC Financial. At the same time, metal producer CMOC Group and solar inverter maker Sungrow Power Supply would join the A50 gauge, replacing Bank of China and parcel delivery firm SF Holdings.\n\nThe changes will be effective after the market close on December 19.\nThe FTSE China 50 Index comprises the 50 most valuable Chinese companies trading in Hong Kong, with Alibaba Group Holding, Tencent Holdings and China Construction Bank being the biggest constituents. Alibaba owns the Post.\nThe A50 Index tracks the companies with the biggest market capitalisations on the Shanghai and Shenzhen exchanges. Liquor maker Kweichow Moutai, CATL and China Merchants Bank have the biggest representation on the gauge.\nThe 50 index has risen by about 25 per cent this year, and the A50 measure has gained more than 10 per cent.\nInvestors should lower their expectations about any significant post-announcement outperformance by the new index members, as the stocks had already performed strongly compared to historical patterns, according to Goldman.\nAs a subsidiary of London Stock Exchange Group, FTSE is an index compiler known for the UK benchmark FTSE 100 Index and the Russell 2000 Index of smaller companies in the US and competes with MSCI.\nIn a similar review last month, Hang Seng Indexes said that biotech firm Innovent Biologics would join the benchmark of Hong Kong stocks after the market close on Friday, boosting the constituent number to 89.\n