What foreign investors need to know about China's property market as MSCI adds to A-shares' weighting

By Zheng Yangpengyangpeng.zheng@scmp.com / https://www.scmp.com/business/article/3012472/explainer-what-foreign-investors-need-know-about-chinas-property-market?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | June 7, 2019 12:04 PM SGT
If you've yet to hear of Greenland Holdings, Seazen Holdings or China Fortune Land Development, don't worry. You likely will be hearing more about them soon, if you are a foreign investor looking for more China exposure.
They are big developers in China's quirky property market " a key driver of the economy and subject to much steering from Beijing and local governments. And they are well known to investors in the mainland China's stock markets.
Now they will become a bigger part of some foreign investors' portfolios, courtesy of MSCI, which this week gave them and 11 other mainland Chinese developers more weight in their indexes.
And because of that, it has suddenly become important for foreign investors to have a better understanding of the mainland China's property sector.
MSCI doubled its "inclusion factor" of China-traded shares " known as A-shares " to 10 per cent. By November, when the inclusion factor is doubled to 20 per cent, A-shares will make up 3.36 per cent of the MSCI Emerging Markets Index.
In the MSCI China A Big-cap Index, the property sector holds the fourth-largest weighting, accounting for 14 of the 264 represented Chinese companies, behind non-bank financials, banks and pharmaceuticals.
Meanwhile, the FTSE Russell will also start to add A-shares to its benchmarks, with the first step to be taken in late June. A-shares will make up 5.51 per cent of FTSE Russell's Emerging Markets Index by 2020. It, along with MSCI, could draw in a passive inflow of US$80 billion by then.
Greenland Holdings, Seazen Holdings and China Fortune Land have shot up this year, outpacing gains on the Shanghai Composite benchmark. As they are more heavily bought by fund and asset managers tracking the MSCI and FTSE indexes, they will get an added boost, an analyst said.
Here's what you need to know about China's developers and property market:
1. Big hammers in China
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